Retailers remain shrouded in gloom

CITY analysts have warned that there is still a risk of more retailers issuing profit warnings before Easter after official figures yesterday showed low consumer confidence pushing sales down.

A bigger than expected fall of 0.8 per cent last month followed January's spending spree when shoppers snapped up bargains before the rise in value added tax (VAT).

Average prices on the high street rose by a record 2.4 per cent between January and February as firms increasingly passed on the VAT hike and increases in commodity prices to consumers.

With consumer spending making up about two-thirds of the economy, analysts said the figures from the Office for National Statistics added to recovery worries, particularly after the Office for Budget Responsibility downgraded the UK's growth forecast for 2011 from 2.1 per cent to 1.7 per cent.

The British Retail Consortium said the ONS figures reinforced the "urgent" need for the measures outlined in the Budget to boost consumer confidence.

Simon Wolfson, chief executive of clothing retailer Next, warned: "Retailing will feel like walking up the down escalator - we will have to work hard to stand still. The UK government cuts were there last year and they are there this year. Inflation is the new factor and the fact that inflation is falling particularly heavily on to inelastic pricing categories - food and fuel."

Earlier this week, official figures showed the consumer prices index (CPI) measure of inflation rose to 4.4 per cent in February and the Bank of England warned that the rate could exceed 5 per cent this year.

Nick Bubb, senior retail analyst at stockbroker Arden Partners, warned of a tough-time ahead for retailers.

He said: "The shadow of higher interest rates remains, given the scary inflation figures, and we remain cautious in the short term about the general retail sector, particularly on the household goods stocks like Home Retail, Dunelm and Carpetright."

The ONS figures follow a series of gloomy updates from retailers including Sainsbury's and John Lewis amid slowing sales growth in recent weeks.

Vicky Redwood, senior UK economist at Capital Economics, said: "The UK's level of sales has fallen below the pre-snow level in November, suggesting an underlying slowdown is at work too. What's more, the outlook for spending remains pretty bleak."

Despite posting a 9 per cent rise in pre-tax profit to 551 million for the year to 31 January, Next warned that its ranges could be up to 10 per cent more expensive this autumn and winter as rising commodity prices continue to squeeze the group.

Kingfisher, which owns the B&Q DIY chain and stores on the continent, also unveiled a rise in profits and said it would step-up expansion plans to cope with tough trading conditions in many of its markets.

Fashion chain Ted Baker said it was confident of overcoming pressure on household spending due to its "brand strength".

But Clinton Cards warned that the tough retail environment would continue to hit trade in 2011, as it posted a 41 per cent drop in pre-tax profits to 11.7m for the six months to 30 January.

How they fared:

CLINTON CARDS

Interim turnover: 178.3m (-7 per cent)

Interim pre-tax profit: 11.7m (-41 per cent)

Interim dividend: None

Chairman Don Lewin: "We are mindful of the challenging economical retail conditions we are operating in and anticipate consumer sentiment to remain cautious and trading to remain difficult for the remainder of 2011."

KINGFISHER

2010 turnover: 10.5bn (-0.5 per cent)

2010 pre-tax profit: 671m (+18.6 per cent)

Total dividend: 7.07p (+28.5 per cent)

Chief executive Ian Cheshire: "Although I see no let up in the challenging environment in the short-term, I am excited by our future prospects."

NEXT

2010 turnover: 3.5bn (+1 per cent)

2010 pre-tax profit: 551m (+9 per cent)

Total dividend: 78p (+18 per cent)

Chief executive Simon Wolfson: "The year ahead will be yet another challenging year for retailers and, if anything, things are likely to get worse before they get better."

TED BAKER

2010 turnover: 187.7m (+14.7 per cent)

2010 pre-tax profit: 24.2m (+24.2 per cent)

Total dividend: 20.6p (+20.1 per cent)

Chief executive Ray Kelvin: "Whilst the economic outlook for 2011 is uncertain, we have demonstrated in previous years our ability to trade through more difficult times."