Shopping giants set to unveil a tale of woe

Marks & Spencer is widely forecast to say the holidays were its worst Christmas and New Year for two years while City speculation is mounting that J Sainsbury has missed chief executive Justin King's sales and profit targets.

The news from M&S on Wednesday will be followed by supermarket-industry data on the same day and by Sainsbury's own trading update on Thursday.

Widespread fear in the City that it has been retail hell comes after Currys.digital group DSG, formerly known as Dixons, revealed last week that it had had a disastrous Christmas. That prompted a far-reaching sell-off of retail stocks, wiping £4 billion off the value of the sector.

Sainbury's, which has been under siege from takeover predators for much of the past year, is being tipped to reveal that it may have had its eye off the festive ball and was forced into heavy discounting to shift produce over the holidays.

Analysts suggest Sainsbury's has been outflanked by northern raider Wm Morrison and fallen further behind Tesco and Asda as Britain's third-largest supermarkets group.

"The alarm bells are ringing," said Greg Lawless at City broker Blue Oar Securities. "Our sources suggest Sainsbury has underperformed the market this Christmas and has missed internal sales and profit targets.

"Morrisons was the winner. We believe that Morrisons is winning customers from Sainsbury, particularly in the South."

That was backed up by the British Retail Consortium, whose director-general Kevin Hawkins said: "There is speculation that Sainsbury is behind the pack."

Broker ABN Amro immediately moved to warn investors, cutting its target price on Sainsbury's shares, down 25¼p today to 380¼p, by 12% to 479p from 544p.

Analysts are already downgrading their forecasts on M&S as talk in the City is that it will report a 2% slowdown in like-for-like sales. That could see it miss hopes for annual profits of £1 billion for the first time in a decade.

Broker Citigroup has cut its target on M&S to 650p from 750p. It says it expects profits for the year to March of £1.05 billion, but Wednesday's figures could yet prompt a further downward revision. Today M&S fell 12½p to 505½p.

The disappointing performance expected from M&S comes as smaller rival House of Fraser continues to boast a renaissance. The once-struggling stores chain, now owned by Icelandic group Baugur, today revealed like-for-like sales up 2.4% over the past five weeks. That is against a strong comparative period the prior year when, just two months after its acquisition by Baugur, like-for-likes improved by more than 7%.

House of Fraser chairman Don McCarthy said: "The strong Christmas trading period has been a superb end to our first year in control of House of Fraser. We have seen both like-for-like sales growth and improvement in our margins despite the general tough retail environment."