July 10 (Bloomberg) -- Marks & Spencer Group Plc, the U.K.'s biggest clothing retailer, said British sales rose at the slowest pace in six quarters after the wettest June on record and higher interest rates eroded sales of summer produce and fashions.
Revenue gained 6.4 percent in the fiscal first quarter, which ended in June, the London-based retailer said today in a statement. That beat the median estimate of 5.5 percent in a Bloomberg survey of 10 analysts.
Chief Executive Officer Stuart Rose said daily downpours reduced demand for summer dresses and helped sales of household goods instead. He expects domestic sales to ``remain very challenging'' after the Bank of England raised its benchmark interest for a fifth time last week.
``They're clearly beating the competition in what's becoming an increasingly bleak trading environment,'' said Andrew Bell, head of research at Rensburg Sheppards in London. He said the company had performed better than he expected as consumers tightened their spending.
Shares of Marks & Spencer jumped as much as 24.5 pence, or 3.9 percent, to 657 pence today in London, the highest since February, before paring gains.
The stock traded at 637.5 pence at 3 p.m. local time, reducing its decline this year to 11 percent. Next Plc, the U.K.'s third-largest clothing chain, has climbed 11 percent so far in 2007.
Total sales including franchise outlets and international stores gained 7 percent. The retailer has stores in Ireland and Hong Kong and owns 60 percent of a unit in Taiwan. Rose said at today's annual general meeting that the company is reviewing ``several large'' countries for expansion.
Wet Weather
Sales of general merchandise, which includes clothing, rose ahead of forecasts at 2.9 percent at stores open at least a year. Food gained 0.7 percent on that basis, lagging the 1.4 percent median estimate of 12 analysts.
``When it rains and people go off buying clothes, there is a certain amount of switch in spending'' to other goods, including home products, said Richard Ratner, an analyst at Seymour Pierce in London. Marks ``isn't really at the expensive end of homeware, and is probably better placed with food and clothing to ride what we think will be a very difficult time.''
Evolution Securities today cut earnings forecasts for Home Retail Group Plc, saying the owner of Argos is overstocked with summer homewares and will be hurt by higher rates. Tesco Plc, the nation's biggest retailer, has also predicted higher rates will weigh on consumers.
Market Share
Marks extended its market share in all of its product areas in the past 52 weeks, Rose said. The retailer cut prices on towels and kettles and extended ranges to include flat-screen televisions and laptop computers, boosting sales at its home unit by 13.4 percent. The wet weather limited the appeal of Marks' collection of knee-length, leaf-print summer skirts and crinkle lace-trim tops.
``Not many girls were running out and buying hot pants and t-shirts in June,'' Rose said on a conference call. ``Retailers don't like interest-rate rises. As every other one comes on it will make life more difficult.''
Deutsche Bank AG, Dresdner Kleinwort and HSBC Holdings Plc reduced their price targets on Marks & Spencer's stock in the past week, citing concern over the pace of revenue growth.
Managing Expectations
``M&S continues to lead something of a charmed life,'' said Richard Hunter, an analyst at Hargreaves Lansdown in London in an e-mailed note. `` The company continues to play down expectations. The actual numbers are sluggish by their own standards, but much of the sting had already been taken out of the news ahead of today.''
Rose, who joined the company in 2004 to fend off a bid from billionaire Philip Green, reported the firm's highest profit in nine years in May after cutting prices, using celebrities such as Twiggy in advertising and refreshing fashion ranges.
Marks & Spencer increased its share of the U.K. clothing market by 0.7 percentage points to 11.1 percent in the year ended April 1 and boosted its share of the food market by 0.2 percentage points to 4.3 percent. To fight back against Tesco and John Lewis Partnership's Waitrose chain, Rose said Marks plans to triple its organic-food range over three years.
Rose wants to add more food and overseas franchise outlets and is renovating stores to further boost sales. About 70 percent of the chain will have been refurbished by Christmas, which Rose said caused some ``disruption'' to trading in the quarter. The CEO said at the annual meeting that new stores are opening more quickly than the company had forecast.
``It seems to be working well,'' Ratner said of the expansion strategy, adding there could be ``danger'' in opening new stores too rapidly. ``I don't think Marks are at saturation point at the moment,'' he said.
Davies Speculation
Rose said he plans to meet this week with George Davies, the creator of Marks & Spencer's Per Una range of women's clothing, amid speculation the executive may quit. Davies will not sign a new contract when the current one expires in late fall, the Daily Telegraph reported on July 8, citing an unnamed executive close to the matter.
Private-equity firms ``would love to get their hands on'' the company's executive team, Rose said at the company's annual shareholder meeting in London this afternoon.
To contact the reporters on this story: Neil Craven in London at Ncraven1@bloomberg.net
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