Marks & Spencer anticipating 'tough' 2010

High street giant Marks & Spencer today warned of "tough going" in 2010, despite reporting its best trading performance for two years.

The retailer's boss, Stuart Rose, said the market had "bottomed out" but expected rising tax burdens and lengthening dole queues to put pressure on shoppers.

"I think what we have got is more visibility and more confidence about, but it is a fragile confidence," the executive chairman said.

His cautious comments took the gloss off a smaller-than-expected 0.5% decline in like-for-like sales from M&S in the 13 weeks to September 26. Shares fell 2% despite M&S continuing the recent improvement in sales trends.

The retailer's food sales halted eight quarters of decline as demand for its premium goods were hit by last year's sharp food inflation and the tougher economic climate.

Like-for-like food sales were flat - although rival Waitrose boasted of a 4.1% rise in its own food sales during the same period.

M&S also held its market share in clothing, despite like-for-like general merchandising sales falling 0.8%.

Rose said M&S would take on an extra 20,000 staff - more than last year - ahead of the all-important Christmas season.

He was "quietly confident" over festive trading but refused to be drawn on predictions of a first return to like-for-like sales growth since 2007.

The chairman warned of "pressure on pockets" next year with the prospect of tax rises, rising unemployment and continuing economic uncertainty.

"It is going to be tough going for the next 12-18 months. I don't think it is going to be spend, spend, spend," he said.

Meanwhile, pleas for the end of the temporary cut in VAT in the UK at the end of December to be extended for a week have also fallen on deaf ears so far at the British Treasury, Rose said.

Despite lobbying from retailers such as M&S, Next and Philip Green's Arcadia, the VAT rise - coming halfway through the festive sales season - is set to add to the pressure at a critical time for the high street as a whole.

"All we are asking for is a week's respite to get the sale out of the way," Sir Stuart added.

Richard Hunter, head of UK equities at stockbroker Hargreaves Lansdown said: "Profit margin remains under pressure and the company continues to rein in expectations ahead of what it expects to be a difficult 2010.

"In terms of the immediate outlook, M&S will now turn its focus to the important and impending Christmas season, where it will find obstacles in terms of competition and a potentially lethargic consumer."

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