M&S and Next making slow recovery while Primark shines

Updates from three of Britain's biggest clothing retailers should shed a little more light next week on whether consumers are starting to spend more freely ahead of the key Christmas trading period.

Mid-market players Marks & Spencer and Next which both report on Wednesday, have been hit particularly hard in the recession, but have recently shown signs of improvement, helped by tight cost and stock management.

Discount chain Primark, whose parent Associated British Foods (ABF.L) publishes full-year results tomorrow, has in contrast been thriving in the downturn.

Hopes of a consumer recovery are high.

British retail stocks, excluding grocers, have surged about 60 per cent this year but evidence of a pick-up in spending has so far been patchy.

While a GfK NOP survey showed on Friday that British consumer confidence rose in October to its highest level since January 2008, official retail sales data for September were flat for a second month running.

Recent updates from Philip Green's Arcadia clothing empire and department store groups Debenhams and John Lewis suggest like-for-like sales have returned to growth in recent weeks against a steep drop in demand a year ago.

Yet all remained cautious.

Debenhams forecast Christmas would be as promotion-led as last year, while Green said stock markets had got "way ahead" of events.

Analysts expect Marks & Spencer to post a four per cent fall in first-half profit before tax and one-off items to £285 million, according to a company poll of 12. Forecasts ranged from £275 million to £300 million.

M&S, which also sells food and homewares, reported a 0.5 per cent fall in second-quarter underlying UK sales in September, its best quarterly outcome for two years, and raised full-year profit expectations.

But it disappointed investors earlier this month with a plan to achieve £250 million of savings a year by 2015-16, which some had hoped would be more ambitious.

That event provided an opportunity for internal candidates looking to succeed Stuart Rose as chief executive next year to set out their stall. But their presentations left many analysts cold, and worried about management succession as a growing list of external candidates rule themselves out.

M&S is also working on its triennial pension valuation, though this is not expected to be ready in time for Wednesday.

Charles Stanley analysts think this will show the pension deficit soaring to about £1.3 billion as of March 31, compared with a shortfall of just over £700 million in 2006.

March was the low-point of the stock market slide, however, and they do not expect M&S will have to step up contributions. Most analysts expect Next to report a fall in underlying sales at its shops for the third-quarter ending October, as recent warm weather offsets weak comparative figures.