By Kathy Sandler
Of DOW JONES NEWSWIRES
LONDON -(Dow Jones)- U.K. food, clothing and housewares retailer Marks & Spencer Group PLC (MKS.LN) Wednesday said it's still cautious about the key Christmas trading period and 2010, even though the third quarter started well and its first-half earnings were better-than-expected.
Chief finance officer Ian Dyson said that while demand has picked up in the last six to nine months, the run-up to Christmas is always competitive and consumer demand remains fragile. He said an increase in the U.K.'s sales tax, or value added tax, rising unemployment and the threat of higher taxes made the retailer cautious for next year.
In a move to widen its appeal, the company also announced it was ending a long tradition of not selling branded products in its food stores. It will now sell products from the likes of Heinz, Kellogg's and Nestle, after a trial in some stores.
The company's profit before tax, property disposals and exceptional items from continuing operations--the key figure tracked by U.K. analysts--rose to GBP298.3 million in the first half of its fiscal year, from GBP297.8 million a year earlier. The figure beat analysts' expectations. Net profit was broadly flat at GBP224.3 million, from GBP223.2 million last year.
The company has been managing its costs tightly, focusing on protecting margins, and has introduced new products and offers to retain customers or lure them from competitors. It increased its share of the clothing market and improved its food performance in the period.
Total sales in the 26 weeks to Sept. 26 rose 2.8% to GBP4.3 billion, although stripping out new store openings, like-for-like sales in the U.K. fell 0.9%.
Despite the fall, both profit and sales trends have been improving for the U.K.'s largest clothing retailer, which is a bellwether for the nation's consumer sentiment.
At 0815 GMT, Marks & Spencer's shares were up 19 pence, or 5.5%, at 360 pence.
The company declared an interim dividend of 5.5 pence per share, down from 8.3p last year.
Marks & Spencer doesn't provide full year profit guidance but reiterated its margin guidance provided in September for a gross margin fall of between 50 to 100 basis points in fiscal 2010. This was an improvement on previous guidance of a 125 to 175 basis points decline. The improvement is expected to come despite annual operating costs potentially rising by up to 1% due to higher logistic, marketing and staffing costs.
In October M&S held an investor day where its outlined its longer-term strategy plans. The plans include improving its supply chain and IT systems, offering more choice on when and where to buy its products--particularly on the internet--and to expand overseas.
The efficiencies identified in the program are expected to deliver cash benefits of GBP250 million per year by 2015/2016, GBP175 million of which will be delivered in the next three years.
-By Kathy Sandler, Dow Jones Newswires; 44-207-842-9293; kathy.sandler@dowjones.com