London, Jan 6 - Three of Britain's biggest retailers reported better-than-feared Christmas sales figures on Tuesday but warned rising unemployment and plunging house prices would blight trading for months to come.
The cautionary comments from Next, Debenhams and New Look were backed by a survey from mortgage lender Nationwide showing a record 15.9 percent annual drop in house prices and sliding consumer confidence in December.
The data will keep pressure on the Bank of England to deliver another big cut in interest rates from the current two percent on Thursday.
Britain has slashed interest rates and cut taxes in a bid to ward off a deep recession. But a stream of gloomy economic data and retail business failures has raised fears the worst is still to come.
The Times newspaper said on Tuesday that landmark British store group Marks & Spencer will axe over 1,000 jobs on Wednesday while Tesco, Britain's biggest retailer, kept up the pressure on the industry by announcing 3,000 price cuts and promotions.
Debenhams Chief Executive Rob Templeman said trading conditions were set to remain tough despite attempts by policymakers to boost consumer demand.
"There's a lot of reasons why consumers could feel better shortly," he told reporters on a conference call, citing lower food and fuel prices as well as falling interest rates.
"But the overriding thing, and the thing that drives consumer behaviour more than anything else is: have I got a job?"
NO PROFIT WARNINGS
Debenhams, Britain's second-biggest department stores chain behind employee-owned John Lewis, reported a 3.5 percent drop in sales for the 18 weeks to Jan. 3 at stores open more than a year, towards the top end of analysts' expectations.
The group, which runs almost 150 stores across the UK and Ireland, also said pretax profits had risen over the period, confounding fears that big discounting in the run-up to Christmas would hit profits.
Templeman said Debenhams had not cut prices or promoted much more than last year, but it had backed up its offers with a stronger public relations offensive.
Gross profit margins were flat over the 18-week period, helped by strong sales of the group's "Designers at Debenhams" ranges, which are more profitable than sales from concessions.
Debenhams, whose shares have plunged over 80 percent in the past two years on fears about its ability to pay off its debts amid worsening trading conditions, also eased some fears about its finances.
Templeman said the firm already had the 100 million pounds it needed to make a debt repayment in the Spring and it had not "pushed any buttons" on a possible equity fundraising.
Debenhams shares leapt as much as 32 percent to 37.75 pence.
"Better-than-expected numbers from Debenhams give management a strong hand, if it decides that it needs a rights issue," Panmure analyst Philip Dorgan said in a research note.
NO QUICK RECOVERY
Next, Britain's second-biggest clothing retailer behind Marks and Spencer, said like-for-like sales at stores unaffected by new openings fell 7 percent in the 21 weeks to Dec. 24.
Some analysts had forecast a fall of up to 8 percent.
Next, which trades from over 460 stores in the UK and Ireland, also said it was comfortable with analysts' current profit forecast range of 415 million to 435 million pounds for the year ending Jan. 31.
Next was one of the few retailers that did not discount heavily in the run up to Christmas, and said the first day of its post-Christmas clearance sale was its busiest ever.
Its shares rose as much as 10 percent to 1,201 pence.
Private equity-owned New Look fared even better, reporting a 2.8 percent rise in like-for-like sales for the 14 weeks to Jan. 3, although it forecast "an increasingly difficult market" in 2009.
Home furnishings group Dunelm also said trading was tough as it reported a 5.6 percent fall in like-for-like sales for the 26 weeks to Dec. 27.
Chief Executive Will Adderley said shoppers should benefit from lower mortgage costs and household bills, but was not holding out for a quick recovery in spending.
"Everyone I know seems to know someone who's lost their job. That's the new dimension to the whole thing," he told Reuters in an interview.