Three of Britain's biggest retailers, Next, John Lewis and Shop Direct, posted healthy Christmas sales on Tuesday but warned impending cuts in government spending and rises in taxation could crimp growth in 2010, sending share prices lower.
Fashion and homewares group Next reported a rise in like-for-like sales for the first time in four years, boosted by cold weather and better ranges, and lifted its 2009/10 profit forecast. But it said 2010/11 profits could be flat.
"One way or another the government's got to reduce spending or increase taxation over the next four years by a significant amount," Chief Executive Simon Wolfson told Reuters.
"My guess is that we'll see the hardest hit early," he said, referring to expectations for tax rises and spending cuts soon after a national government election that must be held by June.
Britain is taking longer to emerge from recession than most major economies, partly due to its exposure to the financial services industry which lay at the heart of the downturn.
However, recent manufacturing, mortgage and money supply data added to signs of recovery being underway.
Next, which runs over 500 shops in the UK and Ireland as well as a home shopping business, said sales at stores open over a year rose 1.6 percent in the 22 weeks to Dec. 24, above its second-half guidance of flat to down 3 percent.
Sales at its Next Directory home shopping business rose 6.8 percent, ahead of forecast of a rise of 4 to 6 percent.
Helped also by tight cost and stock controls, Next said pretax profit would rise to 490-500 million pounds ($789-$805 million) for the year to Jan. 31, up from 429 million the year before and above analysts' consensus forecast of 472 million.
However, Next remained cautious about prospects for 2010, saying it was planning for "similar" profits, although it also said it could buy in more stock if sales proved stronger.
MURKY 2010
Next's mix of strong trading results and caution for the future chimed with comments from department stores group John Lewis, which reported a 15.8 percent rise in sales in the five weeks to Jan. 2 but forecast "a long slow recovery" in 2010.
Shop Direct, the online and home shopping group that owns the Littlewoods and Woolworths brands, posted a 6.3 percent rise in sales for the six weeks to Jan. 1, but also anticipated a "challenging" 2010.
Next shares, which like other retail stocks surged in 2009 on hopes of economic recovery, were down 2.8 percent at 2,079 pence at 1145 GMT, dragging others lower too.
"This could be a proxy for the whole sector," said KBC Peel Hunt analyst John Stevenson, adding that with profit upgrades of 5-10 percent already factored into some share prices, investors may be turning their attention to the murky outlook for consumer spending in 2010.
Shares in Marks & Spencer, Britain's biggest clothing seller which publishes its Christmas figures on Wednesday, were down 2.4 percent at 402.7 pence by 1218 GMT. Shares in Tesco were down 1.5 percent at 422 pence while J Sainsbury was off 1.2 percent at 320 pence.
