(Adds analyst comment, updates share prices)
LONDON -(Dow Jones)- U.K. retail stocks were slightly higher Thursday after surprisingly strong U.K. retail sales data boosted sentiment on a sector that has been under pressure for some months.
U.K. retail sales posted their biggest monthly gain for 22 years in May, the Office for National Statistics said Thursday. Sales rose 3.5% on the month and 8.1% on the year, compared with expectations of a monthly slide of 0.1% and a year-on-year gain of 4.1%.
While the figures were greeted with bemusement by some analysts - due to low consumer confidence and a slew of negative trading updates from retailers in recent months - retail stocks reacted largely positively.
By 1215 GMT in London, shares in (TSCDY) - the U.K.'s largest retailer - were up 1.5% to 387 pence, though fellow supermarket (JSAIY) dropped 1.1% to 322 pence and William Morrison Supermarkets PLC's ( MRW.LN) share price was 1.3% lower at 268 pence.
The ONS said that the high retail sales levels were led by food stores - which had their largest monthly gain since January 1986. Sales of clothing and footwear also rose sharply, it said.
Shares in the country's largest clothing retailer by sales Marks & Spencer Group PLC (LSE:MKS) (MKSY) gained 1.4% to 346 pence, with shares in (ASBFY) - owner of the Primark clothing chain - gaining 1.4% to 807 pence. Next PLC (LSE:NXT) (NXT.LN) shares meanwhile gained 1.5% to trade at 1012 pence.
Home Retail Group PLC (LSE:HOME) (HOME.LN) - owner of the Argos and Homebase chains was its shares rise 0.7% to 213 pence while Debenhams PLC (LSE:DEB) (DEB.LN) was flat at 49 pence.
James Knightley, economist at ING in London described the retail sales figures as "very odd."
"We must all be very fat after spending an extra 3.3% in real terms on food last month," he said. "Because of the extra weight we have gained we have had to throw out all of our clothes and spend an extra 9.2% in real terms on clothing and footwear."
Some retailers had claimed that May was a better month for consumer spending after a wet March and April hit sales during those months. But recent store sales figures hadn't suggested such a surge in overall retail spending.
Gavin George, head of retail at Ernst & Young said the hot weather in May had contributed the impressive sales volumes. "However, in spite of the month's vastly improved performance, the underlying retail sector trend remains weak," he said. "We expect that the trend of low or negative sales growth will resume in the coming months."
"With food, fuel and energy prices increasing significantly, wages not rising in line with inflation - at least for the time being - and house price falls gathering pace, the already debt-laden consumer is being squeezed from all sides," George said.
Tarlok Teji, head of retail at Deloitte pointed out that a very poor month in May 2007 could explain the rise this year.
"These numbers are really just a blip and the longer term picture is one of falling consumer spending and declining sales," he said.
E&Y's George agreed. He expects trading to become tougher in the second half of the year, with resulting discounts pressuring retail margins. "We anticipate that the high level of retailer profit warnings and administrations will continue."
Industry body, The British Retail Consortium cited the weather as the reason for the rise. "As the sun came out so did shoppers, boosting sales of summer food and drink and particularly clothing which had been struggling."
It added however that much of this sales rise was the result of discounts and promotions. "It remains to be seen whether this sun-driven boost is sustained over the coming months."
-By Michael Carolan, Dow Jones Newswires; 44-20-7842-9278; michael.carolan@ dowjones.com
(Jeannie Clarke contributed to this article.)
(END) Dow Jones Newswires 06-19-08 0903 Copyright (c) 2008 Dow Jones & Company, Inc.
