Slow high street sales spark sell-off in retail sector

A string of high street chains yesterday provided fresh evidence that consumers were reining back spending, sparking a sell-off in retail shares.

Trading updates from Debenhams and New Look also confirmed that customers had waited until the last minute to do their Christmas shopping – a trend highlighted by rival retailers. In some cases this hit margins, as companies were forced to slash prices on sale stock.

Shares in New Look fell by 11 per cent to 224p, while Debenhams slipped 6 per cent to 270p. Marks & Spencer, which reports its Christmas figures today, fell 4 per cent to 323p and GUS slipped 3 per cent to 548.5p.

Debenhams, which owns 99 department stores, said like-for-like sales rose 2.8 per cent in the 19 weeks to 11 January. Its gross margin rose by 20 basis points. The group did not break out the sales trend over Christmas, but analysts said they were flat.

New Look, the fashion retailer targeted at younger women, reported a 5.1 per cent rise in underlying sales during the seven weeks over Christmas. But it said gross margins fell by 1.3 per cent, reflecting the post-Christmas surge in sales.

Stephen Sunnucks, the chief executive, said: "The two weeks prior to Christmas were below expectations, which meant slightly more stock going into the sales." He said the group planned to sacrifice about 50 basis points of its gross margin to keep its prices competitive but that its programme to slash costs meant its operating margin would be flat.

Analysts said the fall in New Look's share price reflected disappointment at the margin dilution. Matthew McEachran, at Investec Securities, said: "Profit expectations are not being raised as hoped."

Echoing other retailers, Deborah Earle, Debenhams' chief executive, said she remained "cautious about the economic outlook for the UK consumer". Mr Sunnucks said he expected consumer spending in 2003 to slow to between 2 and 4 per cent, down from nearer 6 per cent in 2002.

Debenhams said the wet weather in November made trading very difficult but that sales accelerated throughout December. The last five weeks to 11 January were "considerably better" than the 2.8 per cent rise across the 19-week period, the group said. Gift sales were strong, with the George Foreman grill and the "Hot Diamond" range of jewellery proving a particular hit, it said.

Elsewhere, Ann Summers, the privately owned chain of sex shops, said underlying sales had risen by 22 per cent. Jacqueline Gold, the chief executive, said sales of its lingerie and naughty novelties tended to prosper when the economic outlook worsened.