The fragile state of consumer spending could be laid bare next week with bellwether retailer Marks & Spencer set to report lower profits and U.S. electricals giant Best Buy likely to pull the plug on its UK megastores.

Grocers J Sainsbury and Wm Morrison are expected to show they are faring better, thanks to their focus on essential purchases, though analysts will look at market research data on Tuesday for clues on whether they have been hit by recent price cuts from industry leader Tesco .

Retailers are mostly having a torrid time as shoppers' disposable incomes are squeezed by rising prices, muted wages growth and government austerity measures.

The problems for Marks & Spencer (M&S), Britain's biggest clothing retailer, have been exacerbated by recent warm weather, which analysts fear has hit sales of knitwear -- a strong area for the business -- and left it with excess stock.

Analysts expect the 127-year-old group, which also sells homewares and upmarket foods, to post on Tuesday an 11 percent drop in first-half profit before tax and one-off items to 311 million pounds, according to a company poll.

Sales from its British stores open over a year are tipped to have fallen 0.9 percent in the second quarter, the first quarterly decline for two years, with a 2.8 percent drop in general merchandise sales offset by a 1.1 percent rise in food.

Key will be the outlook for Christmas, the busiest trading period of the year. While retailers are hopeful of stronger demand than last year, when sales were hit by heavy snowfall, analysts are worried high stock levels could lead to a frenzy of discounting that undermines profitability.

The full-year consensus profit forecast for M&S has fallen around 20 million pounds over the past month to 705 million, according to ThomsonReuters I/B/E/S Estimates.

Analysts will also be looking for feedback on M&S's pilot store refurbishments. Given the tough consumer outlook, those at Nomura think the group may come under pressure to cut back its 600-million-pound revamp plan.


Discount clothing chain Primark is also likely to underscore on Tuesday the pressure on profit margins from higher costs such as cotton prices.

Parent AB Foods is tipped to report flat annual earnings, though Primark's decision not to pass on the full hit from higher costs to shoppers is expected to lift its sales, and it may join rivals in highlighting that recent falls in cotton prices should ease the pain next year.

Carphone Warehouse, Europe's biggest independent mobile phone retailer, will report results on Tuesday as well.

Analysts expect a big fall in first-half earnings. But that is mainly due to the trend in Britain towards 24-month mobile phone contracts from 18 months previously, which has delayed renewals and should be offset by a stronger second half.

Key will be whether Carphone and U.S. partner Best Buy give a long-awaited update on their electrical goods megastores.

Three years after trumpeting plans for a 100-store chain that would act as a springboard for expansion across Europe, the venture has just 11 Best Buy-branded megastores.

Hit by the economic downturn, low brand recognition and a stiff competition from British market leader Dixons , the venture froze new openings earlier this year.

After 62 million pounds of losses last fiscal year, analysts see first-half losses of 40 million, leading some to predict the business, which employs about 1,000, will be closed, leaving the venture to focus on Carphone's smaller Wireless World format in Europe.

We believe a full closure of the (megastores) business is central case, Citi analysts said.

Analysts think a closure could cost 50-80 million pounds, but may also free up Carphone to return cash to shareholders.

Carphone Warehouse declined to comment.


Results from J Sainsbury, Britain's third-biggest supermarket group, on Wednesday are likely to show grocers are coping better with tough trading conditions.

Analysts expect a 6 percent rise in first-half underlying profit to 352 million pounds, according to the average forecast of 16 polled by Reuters.

Operating profit growth of 7 percent to 397 million would match the rise already reported by smaller rival Wm Morrison and top the 4.5 percent increase delivered by Tesco in Britain.

Analysts are also keen to hear about Sainsbury's campaign to match the price of over 13,000 branded goods with Tesco and industry number two Asda . The drive was launched last month in the wake of price cuts by Tesco. A squeeze on industry profit margins is feared.

Morrisons, Britain's fourth-biggest grocer, is expected to report on Thursday a 2.2 percent rise in sales from stores open over a year, excluding fuel and VAT sales tax, for the 13 weeks to October 30, its fiscal third quarter.

That would be in line with first-half growth, and ahead of its larger rivals, helped by the group's focus on fresh foods and its lower exposure to discretionary non-food goods.

(Editing by Andrew Callus)