High street stalwarts Marks & Spencer and Next have both announced strong results, pointing to further signs of a retail revival.
M&S delivered pre-tax profits at the top end of expectations as tight cost and stock management paid off and food sales picked up.
Profits before tax, excluding property sales, edged up to £298.3 million from £297.8 million last year, beating forecasts for profits of £285 million.
Despite like-for-like sales (which includes sales from new stores) falling by 0.9%, total sales were up 2.8% to £4.3 billion across the store. UK sales jumped 1.8% and international sales rose an impressive 12.2%.
The figures represent the store's fourth consecutive quarter of improvement, in part due to promotions including 'Dine in for Two for £10' and the 'Pizza Meal Deal'.
Chairman Sir Stuart Rose says: “We have had a good start to the third quarter. However, the market remains competitive and, as we come up against volatile trading conditions last year, we remain cautious about the outlook for Christmas and the year ahead.”
Marks & Spencer also announced that it will start to sell around 400 branded grocery and household products in most of its UK stores, following a 16-month trial in stores in the North East and South East. Branded-food products include Marmite, Kelloggs and Heinz, while household items will include Fairy, Pantene and Persil.
Meanwhile, fashion retailer Next also reported better-than-expected third quarter sales, leading it to up its sales and profit guidance for the second half of the year.
Sales at stores open at least a year fell 1.3% in the 14 weeks to 31 October - however, analysts had been forecasting a drop of between 2% and 4% following a 2.5% decrease in the first half of the year.
Its Next Directory business continued to perform strongly with sales up 5.1%.
Next, which runs over 500 shops in the UK and Ireland, put its “noticeable pick-up in sales” not only to weak comparative figures but also to an improvement in its clothing ranges, particularly womenswear.
And, unlike M&S, it is relatively confident about its outlook, claiming that consumer sentiment is slowly improving.
In September it forecast like-for-like retail sales would fall by 3.5% to 6.5% in its second half to end-January 2010, with Next Directory sales flat to up 2%. It has now upped this guidance to a range of flat to down 3% for like-for-like retail sales and between 4% and 6% for Next Directory sales.
“The consumer environment remains subdued, but has been more benign than we anticipated," the store said in a statement to investors. "Our customers continue to manage their credit carefully and we have now begun to see a year-on-year reduction in the number of customers going into arrears on their Next Directory accounts. We believe this is a reflection of a general improvement in consumer finances."
The outlook for the high street
Elsewhere, figures from the British Retail Consortium (BRC) reveal that prices on the high street were flat year-on-year in October. This followed marginal declines in shop prices of 0.1% year-on-year in both September and August, which had been the first falls since February 2007.
The BRC indicated that annual falls are particularly marked for clothing, electricals and furniture.
Howard Archer, economist at IHS Global Insight, says retailers are feeling the need to price their goods competitively: “As the critical Christmas shopping season looms, it will be very interesting to see how aggressive shops are in their pricing strategies. If sales start off sluggishly, pressure will mount on retailers to engage in early discounting and promotions such as "flash" sales to try and boost sales."
However, he adds: "Retailers may hold off from early discounting and promotions to try and protect their margins, and in the belief that consumers are delaying their Christmas shopping in the hope that eventually more bargains will appear. With serious pressures on both retailers and consumers, it may ultimately come down to a question of who cracks first.”