The good, the bad

Kasmira Jefford
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THE DIVIDED state of the UK retail sector was brought into sharp focus yesterday as an upbeat Tesco and Shop Direct claimed victory in the Christmas retail wars, while Marks and Spencer suffered the fallout of a worse-than-expected festive period.

Following muted performances by rivals Sainsbury’s and Morrisons, a resurgent Tesco revealed its strongest sales growth in three years, unveiling a 1.8 per cent rise in like-for-like sales for the six weeks to 5 January, part of its fourth quarter.

Shareholders were also cheered by chief executive Philip Clarke’s announcement that he would be handing over the reins of running the UK business to Chris Bush, a Tesco veteran and currently UK chief operating officer – a further sign that the grocer’s £1bn plan to turn around its UK business is gathering momentum.

Shares climbed almost two per cent after the update, which saw total UK sales including VAT and petrol grow by 4.2 per cent, while sales for the group as a whole, including its international arm, rose 3.8 per cent.

Upmarket rival Waitrose, which reported record Christmas sales last week, is expected to reveal a bumper start to the New Year when it delivers its weekly sales figures this morning.

This is in stark contrast to Marks & Spencer, whose shares dived 4.5 per cent as the markets opened yesterday, after a leak on Wednesday night forced the retailer to rush out its festive sales figures. It delivered a worse than expected drop in trading, upping the pressure on chief executive Marc Bolland. Shares later recovered to close down 0.6 per cent.

Britain’s largest clothing retailer revealed sales of general merchandise, including clothing and homeware, slumped by 3.8 per cent on a like-for-like basis compared to analysts’ forecasts, which ranged from up 0.5 per cent to down 3.5 per cent.

Marks & Spencer denied that the grim figures in clothing this year had thrown into question chief executive Marc Bolland’s future with the company. Alan Stewart, finance director, said Bolland had the “full support of the board”.

But one institutional shareholder told City A.M. yesterday that they needed to see improvements in trading within the next year.

“We recognise that Bolland is under a bit of pressure but we are inclined to give him a bit more time – at least six to 12 months – to give him a chance to bed in his new team, particularly in womenswear where there have been personnel changes,” the investor said.

Tesco’s Philip Clarke faced similar pressure a year ago, when the grocer’s shares tumbled after it revealed like-for-like sales fell 2.3 per cent over Christmas 2011, excluding fuel and VAT, prompting its first profit warning in 20 years and the launch of a £1bn plan to overhaul the UK operations.

But yesterday Clarke said the company was “back on form”.

“People have been bruised, felt a bit of failure, and they are not used to it,” he said. “There is now a new sense of energy and optimism.”

Meanwhile ShopDirect – the home and online shopping group owned by the Barclay brothers – reaffirmed the success of online retailers yesterday as it posted a five per cent rise on last year for total sales excluding VAT in the six weeks to 29 December.

Online sales accounted for 80 per cent of total sales in the run up to Christmas, up from 74 per cent in 2011.

More than a third of all customers’ queries now come by a mobile device, the company said.

Earlier this week, the British Retail Consortium said online sales had propped up the sector over Christmas, showing annual growth of almost 18 per cent to push the total value of goods sold up just 1.5 per cent from December 2011.

JD Sports, meanwhile, continued its mixed performance throughout 2012, warning that full-year profits would be at the lower end of market expectations because of one-off losses at Blacks, the outdoors chain it rescued out of administration last year.

The sports and fashion retailer, which forecast losses of £4-5m for Blacks in the second half of the year, now anticipates full-year profits in the region of £60m.

This warning came despite JD reporting that its core sports stores, which include JD and Size?, enjoyed a record Christmas, with like-for-like sales up 3.2 per cent in the seven weeks to 5 January.