Marks and Spencer sees challenging conditions

Retail giant Marks and Spencer saw group sales rise 4.0% in the final quarter of 2010, but the company warned that things are likely to get tougher in the months ahead. "We continue to expect the trading conditions ahead to be more challenging as consumers' disposable incomes come under pressure from increased VAT rates and the impact of public spending cuts. In addition, we are facing increased commodity prices and significantly tougher comparatives," the company said in its fourth quarter trading update.Despite the cautious outlook earnings guidance for the current financial year remains unchanged. Market consensus is for profit before tax of £723m on sales of £9.77bn in the year to 31 March 2011.Total UK sales were 4.0% higher in the 13 weeks to 1 January 2011 compared to the corresponding period of 2009. General Merchandise sales rose 4.4%, with clothing up 4.4% and homewares up 2.7%, while food sales improved 3.5%.On a LFL basis, UK sales were up 2.8%. General Merchandise sales rose 3.8%, versus expectations of 3.2%. LFL Food sales growth was 1.8%, a shade below the 1.9% growth the market had been expecting. Growth was helped by food price inflation of between 1% and 2% in the final quarter of 2010, Marks & Spencer (M&S) chief financial officer Alan Stewart revealed in a conference call."External estimates are that it's running at slightly higher than that at the moment," Stewart added.Clothing market share increased by seven-tenths of a percentage point to 11.8% in the 12 weeks to 1 November, with growth seen across all areas. "As they continued to manage their budgets carefully, customers also came to us for wardrobe staples, with sales of underwear, sleepwear and footwear performing strongly," the company said.Food market share rose one-tenth of a percentage point to 3.9% in the 12 weeks to 28 November. December 23 was a record day for the company's "Food on Thursday" promotion, with sales topping £50m.M&S Direct sales were up 25% in the quarter. International sales were up 4.5%, reflecting a good performance across most markets offset by difficult trading conditions in Ireland and Greece.Following the lead of many other retailers, Marks & Spencer attempted to quantify the effect of the poor weather conditions, saying it estimates that food sales were about 1% lower than they would otherwise have been, while general merchandise sales were about 3% below par. On the other hand, this time round the figures include the first five days of the group's sale in the third quarter, which had an estimated positive e3% impact on general merchandise sales.