Britain's biggest retailers are coping in a tough economic environment, but are concerned that steps to bring down government borrowing, like higher taxes and public spending cuts, could hit consumers in the months ahead, according to Reuters. Wm Morrison, Britain's fourth-biggest grocer, beat forecasts with a 21 percent rise in annual profit on Thursday, helped by its focus on low prices and fresh foods, and showed its confidence of riding out further economic turmoil by lifting its dividend and planning to open more stores. Home Retail, Britain's largest household goods retailer, said its annual profits would be slightly ahead of forecasts thanks to a better performance on profit margins, although underlying sales at both its catalogue-based Argos stores and Homebase do-it-yourself chain fell. Later on Thursday, employee-owned retailer John Lewis, which runs eponymous department stores and upmarket grocer Waitrose, is expected to report a rise in annual profit and a big bonus for its staff, helped by market share gains. Britain's biggest retailers have tended to fare better than smaller rivals in the recession and mostly enjoyed a strong Christmas as shoppers benefited from lower interest rates. Recent trading has been disrupted by severe winter weather, but has generally pointed to a continued improvement. The British Retail Consortium said on Tuesday the value of sales last month was 2.2 percent higher than a year ago on a like-for-like basis. However, store groups are worried that higher taxes and public spending cuts will hit consumers in the months ahead. John Lewis Chairman Charlie Mayfield said last week that signs of a consumer recovery were a "false dawn," while the head of grocer J Sainsbury told Reuters on Wednesday he saw no sign for optimism. MORE OF THE SAME FROM MORRISON Morrison, whose new chief executive Dalton Philips starts this month, made profit before tax and one-off items of 767 million pounds ($1.1 billion) in the year to Jan. 31, beating analysts' average forecast of 757 million in a Reuters poll. The dividend was hiked 41 percent to 8.2 pence a share as the group reaped the benefits of a three-year "optimisation" plan to improve its operating systems and distribution. It also showed confidence in the future by unveiling plans to open around 1.5 million square feet of selling space over the next three years, which Finance Director Richard Pennycook said would include about 60 large format stores. But some analysts were disappointed it did not announce a new optimisation plan and are keen to hear whether the new chief executive 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. At 0911 GMT, Morrison shares were down 1.3 percent at 300 pence. NO CLARITY Home Retail said it expected to make an underlying pretax profit of around 290 million pounds for the year ended Feb. 27 2010, ahead of analysts' average forecast of 285 million. But it also said sales at Argos shops open at least a year fell 9.4 percent in the eight weeks to Feb. 27, worse than analysts' average forecast for a 7 percent decline. Trading was disrupted by recent severe winter weather and the group said it was planning cautiously for the future, given "the uncertain economic outlook". Shore Capital analyst Kate Calvert said this uncertainty would continue to haunt retail shares. "We believe 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 and underperformed rivals, were up 2.4 percent at 274.2 pence by 0911 GMT.
