Christmas updates to shine light on UK retail prospects

LONDON Fri Jan 4, 2013 5:40pm GMT

A woman walks out of the Marble Arch branch of Marks and Spencer in central London June 8, 2012. REUTERS/Paul Hackett

A woman walks out of the Marble Arch branch of Marks and Spencer in central London June 8, 2012.

Credit: Reuters/Paul Hackett

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LONDON (Reuters) - The prospects for consumer spending and the broader British economy will be in focus next week when a host of retailers, including Marks & Spencer and Tesco, report Christmas sales figures.

Many store groups found the going tough last year as consumers fretted over job security and a squeeze on incomes.

With wage rises failing to match inflation and another round of government spending cuts slated for 2013, retailers were expected to strike a downbeat tone on the outlook and say growth will be reliant on internal initiatives.

While grocers traditionally cope better in tough times thanks to their focus on essential goods, they are finding growth hard to come by even as they expand their offering into homewares and other non-food offerings.

Analysts think No. 4 grocer Wm Morrison Supermarkets will, on Monday, post the worst of the Christmas figures out of the food retailers reporting next week.

Sales at Morrison stores open over a year, excluding fuel, were seen down about 2 percent. That would follow a fiscal third-quarter fall of 2.1 percent and partly reflect the lack of an online presence and minimal convenience store presence.

Indeed, the retail sector's best Christmas performers - all helped by a strong online presence - may have reported already.

John Lewis - Britain's biggest department store group, and sister company Waitrose - an upmarket grocer, have both reported record Christmas sales, while clothing retailer Next posted a solid outcome and raised profit guidance.

MARKET LEADER

For retail market leader Tesco, which updates on Thursday, analysts forecast like-for-like sales, excluding fuel and VAT sales tax, to grow 0.5-1.5 percent in its home market, having fallen 0.6 percent in its third quarter.

That said, Tesco is up against a weak comparative - a dismal Christmas performance in 2011 resulted in its first profit warning in 20 years and a move to spend 1 billion pounds ($1.6 billion) on a recovery plan.

While the world's No. 3 retailer may show some progress in its home market, its overseas problems are mounting. Though the group has flagged an exit from the United States, in South Korea - its biggest overseas market, legislation allowing local governments to impose shorter trading hours is hurting. Also, trade in eastern Europe is being hit by euro zone instability.

Sainsbury, Britain's No. 3 grocer, has guided to second-half like-for-like sales growth similar to the 1.7 percent in its first half. For its third-quarter update, expected Wednesday, analysts forecast like-for-like growth of about 0.9 percent.

DISCIPLINED

Though pre-Christmas promotional activity among clothing groups was widespread it appears to have been less severe than in 2011.

"Anecdotally, it was hugely more disciplined than last year," Simon Wolfson, chief executive of Next - Britain's second-biggest clothing retailer, told Reuters on Thursday.

That should bode well for margins at Marks & Spencer, Britain's largest clothing retailer, which updates on Thursday.

Analysts expected M&S to report a 1.5 percent drop in fiscal third-quarter general merchandise sales from British stores open at least a year. That would be a small improvement on a second-quarter decline of 1.8 percent.

However, like-for-like food sales were seen up 0.5 percent, less than the 1.5 percent rise in the previous period.

(Editing by Dan Lalor)

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