High Street points to pick-up

High street stalwarts Marks & Spencer and Next today pointed to further signs of a retail revival following stronger trading in recent months.

M&S delivered pre-tax profits at the top end of expectations as tight cost and stock management paid off and food sales picked up.

Profits before tax, excluding property sales, edged up to £298.3 million from £297.8 million last year, beating forecasts for profits of £285 million.

Fashion retailer Next also reported better-than-expected third quarter sales, leading it to up its sales and profit guidance for the second half of the year.

Sales at stores open at least a year fell 1.3% in the 14 weeks to 31 October. Analysts had been forecasting a drop of between 2% and 4% following a 2.5% decrease in the first half of the year.

Its directories business continued to perform strongly with sales up 5.1%.

Next, which runs over 500 shops in the UK and Ireland, put its 'noticeable pick-up in sales' not only to weak comparative figures but also to an improvement in its clothing ranges particularly womenswear. 

Meanwhile M&S saw like-for-like sales for the six months to 26 September dip 0.9% on the same period last year, with general merchandise falling 1.4% and food 0.3% lower - its fourth consecutive quarter of improvement in part due to promotions including Dine in for two for £10 and the Pizza Meal Deal.

Total sales for the period rose 2.8% to £4.3 billion.

Chairman Sir Stuart Rose says: 'We have had a good start to the third quarter. However, the market remains competitive and, as we come up against volatile trading conditions last year, we remain cautious about the outlook for Christmas and the year ahead.'

The group is paying an interim dividend of 5.5p.

However, Next adopted a more positive stance, claiming that consumer sentiment is slowly improving. 

In September it forecast like-for-like retail sales would fall by 3.5% to 6.5% in its second half to end-January 2010, with Directory sales flat to up 2%.

It has now upped this guidance to a range of flat to down 3% for like-for-like retail sales and between 4% and 6% for Directory sales.

'The consumer environment remains subdued, but has been more benign than we anticipated. Our customers continue to manage their credit carefully and we have now begun to see a year on year reduction in the number of customers going into arrears on their Next Directory accounts. 

"We believe this is a reflection of a general improvement in consumer finances,' the FTSE 100 group said.

Figures from the British Retail Consortium today revealed that prices on the High Street were flat year-on-year in October. This followed marginal declines in shop prices of 0.1% year-on-year in both September and August, which had been the first falls since February 2007.

The BRC indicated that year-on-year price falls are particularly marked for clothing, electricals and furniture.

Howard Archer of IHS Global Insight says retailers are feeling the need to price their goods competitively. 

He adds: 'As the critical Christmas shopping season looms, it will be very interesting to see how aggressive shops are in their pricing strategies. If sales start off sluggishly, pressure will mount on retailers to engage in early discounting and promotions such as "flash" sales to try and boost sales.

'However, retailers may hold off from early discounting and promotions to try and protect their margins, and in the belief that consumers are delaying their Christmas shopping in the hope that eventually more bargains will appear. With serious pressures on both retailers and consumers, it may ultimately come down to a question of who cracks first.'