M&S and German data sends retailers into tailspin

By Mike Elliott and Rachel Sanderson

LONDON (Reuters) - European retail stocks went into a tailspin on Wednesday after Marks & Spencer unveiled its worst quarterly trading performance in two years and German retail sales fell, painting a darkening picture of consumer spending.

Marks & Spencer Group Plc, a bellwether for British retailers, shocked investors with a 2.2 percent fall in sales at UK stores open at least a year during the crucial Christmas period, undershooting market consensus of zero to 1 percent growth.

Its share price fell nearly 20 percent and hit the sector with the DJ Stoxx index of European retailers down 5.3 percent on the day, and looking set to post its largest daily fall since February 2003.

The gloomy outlook twinned with a fall in industrial output, exports and retail sales in the euro zone's biggest economy, Germany, in November, heightening concerns about the outlook for European spending.

"The negativity around consumer sentiment is substantial. There is a concern about global prices, energy and mortgage costs and many people are taking the bad news from retailers as indicative of a longer term slump but there is more doom and gloom than is probably justified," Planet Retail's Global Retail Research Manager Bryan Roberts said.

Marks & Spencer was the latest retailer to warn of tough times ahead following signs of a consumer slowdown as higher mortgage rates, and rising fuel and food bills bite.

Clothing retailer Next Plc, whose shares were down 7.8 percent, also warned last week its 2008 outlook was "extremely cautious", while Europe's largest electrical goods retailer, DSG International, saw its shares plunge almost a third last Thursday after a profit warning.

Bang & Olufsen, the Danish maker of sleek sound systems and high-priced TVs, saw its shares fall by over 25 percent after cutting its full year sales outlook on expectations of weaker demand in parts of Europe and in the United States.