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* Third-quarter clothing and homewares sales up 2.3 pct
* Food sales rise 0.6 pct, also beating expectations
* First market share gain for full-price clothing in sevenyears
* Retailers enjoy positive Christmas but outlook uncertain (Adds futher CEO quote, updates shares)
By Paul Sandle
LONDON, Jan 12 (Reuters) - Marks & Spencer (M&S)soundly beat forecasts for Christmas trading with its firstquarterly increase in clothing and homeware sales in nearly twoyears, delivering a welcome boost for new boss Steve Rowe.
After taking the helm in April, Rowe instigated the latestin a long line of recovery strategies for M&S's underperformingclothing and homewares business. He was rewarded on Thursdaywith an unexpected 2.3 percent jump in the division'slike-for-like sales in the 13 weeks to Dec. 31.
Chief Executive Rowe said that M&S, one of the best knownnames on the British high street, had a good Christmas but hewas "absolutely clear there is a lot more to do".
Clothing sales beat market expectations of a slender rise of0.2 percent, while food sales also beat forecasts. Food was up0.6 percent, against predictions of a slight fall.
M&S's numbers were helped by five days of the busypost-Christmas sale falling into the quarter, which had apositive effect of about 1.5 percent on clothing and 0.3 percenton food.
Rowe said those timing effects and a later Easter would makeits fourth quarter tougher. Yet he remains confident hisstrategy is bringing results, adding that customers looking forclothes had responded to its "better ranges, better availabilityand better prices".
"We saw full-price increases in every single clothingdivision," he said, adding that it was the first time the133-year-old company had gained market share in full-priceclothing for about seven years.
The food operation, meanwhile, benefited from customers'preference for premium products at Christmas, said Rowe, who hasbeen at M&S for more than 26 years.
"(That) played to our strengths as we continued to focus onspecial and different products, growing our business in a toughmarket," he added.
M&S shares rose by as much as 6 percent to a six-month highafter Thursday's update. They later gave up some of the gains totrade up 1.3 percent at 344.8 pence by 1554 GMT.
Shore Capital analyst Clive Black acknowledged the "verywelcome" improvement in clothing sales, but added: "This earlywin needs to become a trend for the stock to fulfil itsundoubted potential."
FRAGILE CONFIDENCE
A series of trading updates on Thursday showed Britishshoppers put aside worries about the economy to celebrateChristmas by spending heavily on gifts and food. Departmentstores Debenhams and John Lewis also reported salesgrowth.
Supermarket chain Tesco, Britain's biggestretailer, reported its best quarter of UK underlying salesgrowth for over five years.
Rowe, however, said the economic outlook was uncertain.
"It's fragile," he said. "Top-line consumer confidence isok, (but) confidence in the economy in the longer term looksweak."
Rowe said M&S is relying on "self-help". His strategy forreviving M&S focuses on simplifying product ranges, improvingquality and pricing, and running fewer promotions.
"We have been listening to customers very carefully, makingsure our merchandise is appropriate, getting those wardrobeessentials right (...) and it's worked," he told reporters.
He said that children's clothes, cashmere and lambswooljumpers and lingerie -- traditional M&S strengths -- sold well.
A buoyant Christmas for M&S was in contrast with a miserableseason at Next, its closest rival in clothes andhomeware.
M&S said that customers traded up in festive food, treatingthemselves to more than 100,000 of its chocolate pine cones inthe days before Christmas, while it sold 1.1 million turkeys.
Analysts expect M&S to report full-year pretax profit of 593million pounds ($726 million) for the year to March 31, downfrom 690 million pounds in 2015-16.($1 = 0.8163 pounds)
(Editing by David Goodman)
