Marks & Spencer, Britain's biggest clothing retailer, said it was cautious about the outlook for consumers ahead of expected tax rises as it met forecasts with a 4.6 percent rise in annual profit.
The 126-year-old group, which also sells food and homewares, said on Tuesday it had made a satisfactory start to the first quarter of its new financial year.
Consumers are naturally concerned about any impact of the Budget on 22 June, it said, referring to plans by Britain's new coalition government to announce steps to cut a record state deficit next month.
We therefore remain cautious about the outlook for the year ahead.
Marks & Spencer (M&S), which serves 21 million Britons a week from over 650 stores and also has about 300 shops abroad, said it made profit before tax and one-off items of 632.5 million pounds ($910 million) in the 52 weeks ended March 27.
That was just ahead of analysts' average forecast of 628 million pounds in a company poll, helped by a 30-basis-point increase in clothing market share to 11 percent.
But it falls short of the rises posted by rivals like Next
and John Lewis, and underscores the challenges facing new chief executive Marc Bolland as he looks to rebuild profits toward the 1 billion pounds achieved in 2007-8.
Marks & Spencer (M&S) had a particularly tough recession, hit by the challenge from clothing discounters like Primark and admitting it was too slow to adapt its upmarket food business.
It has fought back, introducing lower-priced Wise Buys on food and new clothing ranges like Indigo.
M&S Executive Chairman Stuart Rose, who is giving up his executive functions at the end of July, told BBC Radio he did not expect Britain's economy would dip back into recession, and said he was confident M&S could stay in growth.
Arden Partners analyst Nick Bubb, however, forecasts a small fall in profits to 620 million pounds in 2010-11 due to competition in clothing and the need to focus on low prices in food.
The shares may edge up first thing, but our view remains, notwithstanding Next's pure UK exposure, that Next should trade at a small premium to M&S, he said.
M&S's sales rose 3.2 percent to 9.3 billion pounds and the firm cut its annual dividend to 15 pence a share from 17.8 pence the year before, in line with previous guidance.
Its shares have lagged the STOXX 600 European retail index
by 16 percent this year and closed on Monday at 333.5 pence, valuing the firm at about 5.2 billion pounds.
(Editing by Mike Nesbit)