The > Business > World Business > Tesco Takes a Round in Bout of British Retailers

ONDON, Sept. 21 - In the take-no-prisoners battle for the pocketbooks of Britain's shoppers, Tesco, the No. 1 supermarket, scored sharp gains on Tuesday, posting a 30 percent rise in first-half net income while Marks & Spencer, once the Main Street champion, reported a further decline in sales.

The contest pits a price-savvy Tesco, which offers an ever-broader array of wares from food to DVD's, against an off-balance Marks & Spencer, which is struggling to lure back customers after fighting off a .9 billion hostile takeover bid from Philip Green, a billionaire entrepreneur.

Marks & Spencer rattled some investors on Tuesday by pricing a planned .1 billion share buyback in a band from £3.32 (.93) to £3.80 (.79) a share - well below Mr. Green's offer of £4 (.14) a share. The buyback was one of the moves intended to resist Mr. Green's bid. Mr. Green gave up his pursuit in July.

While analysts had not expected the top end of the buyback range to be at the same level as Mr. Green's bid, some expressed surprise that the lower end of the range was significantly below Monday's closing price of £3.455 (.20).

Marks & Spencer's shares fell further on Tuesday, to a low of £3.395, their weakest level since late May, when Mr. Green first indicated that he might make a bid. The stock settled at £3.415, down 1.2 percent. The company, which is still Britain's biggest clothing retailer, said its comparable-store sales dropped for the fourth consecutive quarter, down 6.3 percent in the 10 weeks to Sept. 18 compared with the 10 weeks to Sept. 13, 2003.

Investors largely expected the setbacks. The biggest decline came in sales of clothes and home furnishings, down 9.2 percent, while food sales fell 2.5 percent.

"I'm not looking for excuses," said Stuart Rose, the chief executive of Marks & Spencer. But, he said, there had been many distractions during Mr. Green's bid, affecting the way shoppers viewed the company.

By contrast, Tesco shares rallied 3.5 percent after the company said its first-half net profit rose to around billion. One of the biggest gains was in sales of clothes - still a small proportion of the company's overall business - as the chain courted relatively low-budget shoppers with prices far lower than those of Marks & Spencer.

Traditionally, British supermarkets sold mainly food, but they now have other offerings, including clothing, that directly challenge Main Street retailers. At the same time, Marks & Spencer has found itself under pressure from other Main Street retailers, like Next, which have captured the imagination of shoppers, especially women. Last week, Next said its first-half sales rose 15 percent, despite bad weather that kept many shoppers at home.

"The consumers have changed, and Marks & Spencer has not changed with them," said Rory Codd, an analyst with Numis Securities. By contrast, Tesco had "such a captive market and they can afford to enter areas of the market you wouldn't expect them to."

"Their buying power is so enormous and their footfall is so great" that Tesco has been able to expand into diverse areas, from car insurance and mortgages to school clothes and books, Mr. Codd said.

The growth in Tesco's profit was the highest in more than three years. The chain has been expanding aggressively, opening a string of Tesco Express convenience stores alongside its bigger supermarkets.

Marks & Spencer's problems also reflect a shift away from the notion that its midrange clothing prices reflect value. Shoppers, Mr. Codd said, no longer believe that "the quality is better than elsewhere, so the value-for-money concept is gone."

At the same time, though, investors did not seem to blame current management for problems inherited from its predecessors and appeared likely to wait until early next year for any recovery.