British retailers raise concerns about government moves(69970)

UK retailers see tougher times ahead

From: Reuters

Britain's top retailers expect trading to get tougher this year as taxes rise and public spending falls to bring down government debt, but are optimistic of coping after cutting costs and focusing on cheaper products.

John Lewis, the employee-owned retailer that runs department stores and upmarket grocer Waitrose, underscored its confidence by paying out a 151 million pounds ($225.3 million) bonus worth 15 percent of salary to its 70,000 staff, or "partners".

Wm Morrison, Britain's fourth-biggest grocer, hiked its dividend to shareholders by 41 percent and unveiled plans to step up expansion over the next three years.

Despite the deepest recession in over 60 years, consumer spending has held up better than store groups expected this time last year, thanks to big interest rate cuts and government stimulus measures.

The British Retail Consortium on Tuesday said retail sales recovered in February from January's snow related slide, helped by strong sales of clothing and footwear.

But retailers fear trading could get tougher after a national election which is expected in May.

"The likely withdrawal of monetary stimulus, higher taxes, the possibility of increased interest rates and the implications of public spending cuts make for an uncertain outlook," said John Lewis Chairman Charlie Mayfield.

"We anticipate more challenging trading conditions in 2010, particularly in the second half of the year."

But the firm was confident of coping, however, having successfully adapted its offering to the times with its phenomenally successful "essentials" range at Waitrose and a "value" range at its department stores.

Profit before partnership bonus and tax rose 10 percent to 306.6 million pounds in the year ended Jan. 30 on a 6.5 percent rise in sales to 7.4 billion.

"Our performance accelerated through the year, culminating in the best performance versus the market in the final quarter," said Mayfield.

NO CLARITY

Home Retail, Britain's biggest household goods retailer, added to the good news by raising its profit forecast for the year ended Feb. 27 to 290 million pounds from 285 million. [ID:nLDE628096]

That was despite a bigger-than-expected 9.4 percent drop in like-for-like sales at its catalogue-based Argos stores for the last eight weeks of the period, as severe winter weather kept shoppers away.

The upgrade was helped by a better-than-forecast performance from the group's Homebase do-it-yourself chain, where like-for-like sales fell just 0.6 percent over the eight weeks.

The firm said it was planning cautiously, given the uncertain economic outlook, and adverse currency movements.

Shore Capital analyst Kate Calvert said a lack of visibility could haunt retail shares.

"The key to investor sentiment on Home Retail, like for the sector, is understanding the underlying sales trend, and this update provides no clarity," she said, noting that analysts' 2010-11 profit forecasts for the group ranged from 250 million to 350 million pounds.

Home Retail shares, which have fallen 12 percent over the past three months, underperforming rivals, were up 1.5 percent at 271.7 pence by 1326 GMT.

The firm, which ended the year with cash of 410 million pounds, declined to comment on some analysts' view its recent share price fall makes it vulnerable to a private equity bid.

MORE OF THE SAME FROM MORRISON

Morrison, whose new chief executive Dalton Philips starts this month, posted a 21 percent rise in profit before tax and one-off items to 767 million pounds for the year to Jan. 31, driven by its focus on low prices and fresh foods.

That beat analysts' average forecast of 757 million in a poll by Thomson Reuters I/B/E/S Estimates.

Morrison also lifted its dividend to 8.2 pence a share, and showed confidence in the future by unveiling plans to open around 1.5 million square feet of selling space over the next three years, including about 60 large format stores.

Some analysts, though, were disappointed the group did not announce a new plan to replace a three-year drive to improve distribution and operating systems which ended in January.

They also want to hear whether the new CEO will follow rivals into markets like household goods, services and online.

"Good, but just more of the same," was the verdict of Collins Stewart's Greg Lawless, and Morrison shares were down 1.9 percent at 298.3 pence.

British retailers raise concerns about government moves

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