Chief executive Stuart Rose, who parachuted into the retailer in May 2004 to fend off Sir Philip Green's audacious 9.1 bln stg takeover approach, said he expects 'very challenging' UK trading conditions in the short term and expressed concern about the possibility of a further quarter-point rise in UK interest rates to 6 pct.
'Retailers don't like rate rises. We've had five in a row now -- clearly they're unhelpful and if another one comes along it will make life more difficult,' he told reporters.
For the 13 weeks to June 30, the group, which trades from about 460 UK stores and 150 overseas, saw its total sales increase 7 pct, with UK sales up 6.4 pct and international sales up 14.8 pct.
Total UK sales on a like-for-like basis, which strips out the impact of new and closed space, increased 2.0 pct.
Within this, non-food (clothing and home) like-for-like sales were up 2.9 pct, better than analysts' consensus forecast for 1 pct growth.
M&S said it consolidated non-food market share gains made over the last year, despite strong comparative numbers and disruption to 3 mln square feet of trading space from a continuing store refurbishment programme that will see 70 pct of the group's UK store portfolio upgraded for the Christmas period. The group is also on track to add 4.5 pct of new space this year.
Like-for-like food sales were up 0.7 pct. Although this was a touch below analysts' consensus forecast of 1 pct, M&S said it still won market share.
However, the first-quarter outturn in both divisions represents a slowdown from growth of 4.6 pct for non-food and 3.0 pct for food in the fourth quarter of the previous financial year, itself a slowdown on its third-quarter performance.
'Rising interest rates, general uncertainty over consumer spending and extreme weather conditions combined to make market conditions particularly volatile over the quarter,' said the CEO.
Last November, when rival retailers were blaming an unusually warm autumn for poor sales, Rose famously declared 'weather is for wimps'.
Today he insisted 'there's weather and weather', noting last month was the wettest June since records began in 1914.
'At the end of the day, when you've got photographs of people pumping around in boats from Carlisle through to Hexham, clearly it's been extreme weather, something which we didn't anticipate,' he said.
'We've done no more discounting than we would normally do but you don't need to be a genius to work out that not many of us have been rushing out in June to buy a pair of hot pants or a T-shirt, so in that respect it's been more difficult,' he added. 'Conversely... we sold a lot of umbrellas, a lot of raincoats and quite a few galoshes.'
Rose claimed group like-for-like sales growth of 2 pct is 'a pretty robust performance' when compared to last year's first quarter growth of 8.2 pct.
He said the mid-season sale will start as planned in two or three weeks, with the traditional end-of-season sale slated for the end of August.
'You should take note of the fact that we're not on sale (now),' he said in a thinly disguised dig at competitors.
At 11.47 am, shares in M&S, down 15 pct over the last two months, were up 16 pence at 648-1/2 pence, valuing the business at 11.0 bln stg, on relief the group did not issue a profit warning.
Analysts at Citigroup reckon M&S' first-quarter clothing trends will prove to be well ahead of industry norms and believe the group should deliver one of the best Christmas 2007 trends from the industry.
They held their pretax profit forecast at 1.09 bln stg for the year to the end of March 2008 and their forecast for the following year at 1.20 bln stg, reiterating their 'buy' recommendation.
However, analysts at Merrill Lynch remain sellers of the stock. 'The problem for M&S is that it is investing its balance sheet in driving its top line, and evidence that this will be harder work, and potentially higher risk, in future will continue to weigh on the shares,' they told clients.
Meanwhile, Rose said he is unsure if fashion designer George Davies, the man behind M&S' successful Per Una range, is preparing to stand down from the retailer later this year -- as reported by a Sunday newspaper.
'The truth of the matter is I haven't a clue,' he said. 'I rang George to ask him what was going on and he said he hadn't spoken to anybody.'
Rose hopes to meet Davies this week.
'George is George, Per Una is a big business with hundreds of people in it -- it's been integrated into M&S. He's a man of 65, who at some point I'm sure will think about what he wants to do,' Rose said.
M&S' trading update was issued ahead of this afternoon's annual shareholders' meeting.
At the AGM, the board could take some flak over its pay arrangements after some shareholder groups expressed concern over the earnings per share targets that determine the payouts under M&S' performance share plan.
However, the retailer appears to have defused a potentially serious row by agreeing to set tougher targets.
Source: hemscott
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