Britain’s biggest clothing retailer, which also sells upmarket foods and homewares, said it expected trading to get tougher as consumers are hit by government cutbacks, rising prices and worry about higher interest rates.

But it forecast gross profit margins would be flat to 25 basis points higher in the coming financial year, as it cuts costs and improves purchasing and distribution in order to offset an expected 5 percent rise in operating expenses.

“We had a good fourth quarter in a challenging trading environment,” said chief executive Marc Bolland.

“Strong products backed by great advertising meant we outperformed the market and grew share in both food and clothing.”

British retailers including household goods group Home Retail, electricals retailer Dixons, mother and baby goods chain Mothercare, and music and books group HMV have issued profit warnings in recent weeks, raising fears ahead of M&S’s trading update.

The 127-year-old group, which serves 21 million Britons a week from around 700 stores and has over 350 mainly franchised shops abroad, said sales at UK stores open over a year rose 0.1 percent in the 13 weeks to April 2, its fiscal fourth quarter.

While down on a 2.8 percent increase in the third quarter, that was well above analyst forecasts for a 2-4 percent fall.

Stripping out adverse calendar effects, underlying sales were up 2.2 percent and M&S said it gained 30 basis points of market share in non-food goods and 10 basis points in food.

Underlying general merchandise sales fell 3.9 percent, less than expected, as strong sales of menswear and lingerie helped to mitigate the negative calendar effects.

Underlying food sales rose 3.4 percent, helped by over 320 new products and strong sales of healthy meal brands “Count on Us” and “Simply Fuller Longer.”

Bolland, enticed from grocer Morrisons last year by a 15-million-pound pay deal, put innovation at the heart of a strategy plan announced in November, which also focussed on revamping stores and expanding online and abroad.

M&S shares closed at 340.2 pence on Tuesday, valuing the firm at about 5.4 billion pounds.