(Corrects spelling of name in fourth paragraph)
* Q2 UK underlying sales +5.3% vs forecast +1.3-4.6%
* Q2 UK non food underlying sales +7.0%; forecast +1.6-5.5%
* UK food underlying sales +3.7% vs forecast +0.8-4.3%
* Full-year guidance unchanged; costs rise to be at top end
* Shares up 2.4 percent
(Adds detail, CEO comments, updates shares)
By James Davey and Mark Potter
LONDON, Oct 7 (Reuters) - Bellwether British retailer Marks & Spencer said it is hoping its older customer base will see it through the gathering storm of public sector cuts and tax rises as it beat forecasts for second-quarter sales.
"Our customers are a bit older and what we see clearly from our market data is that older customers are concerned about cuts but better prepared than younger customers," Chief Executive Marc Bolland told reporters on Thursday.
Echoing comments this week from Tesco and Sainsbury, Britain's No. 1 and No. 3 grocers respectively, Bolland said he did not expect government spending cuts to be unveiled on Oct. 20 to tip the economy back into recession.
"No, we don't expect a double dip. Yes, we expect customers to have a more difficult trading environment, but we expect to be well positioned," said the CEO whose latest TV adverts feature models including Lisa Snowdon in a military-style coat and cap.
He also highlighted increasing demand for products which are innovative and high quality. "Customers are returning to quality in the face of economic uncertainty, especially we see that in areas such as mens' suits and knitwear," he said.
"They ... 'buy once, buy well' in general merchandise articles and that is a trend that I see continuing in the coming year," said the Dutchman. "With an uncertain environment people are choosing quality, they will go for something that lasts ... a bit longer than a couple of days."
Britain's biggest clothing retailer, which also sells upmarket foods and homewares, said underlying sales increased 5.3 percent in the 13 weeks to Oct. 2, its second quarter.
That was the fourth consecutive quarterly rise, up from 3.6 percent in the first quarter and against analysts' average forecast of 3.2 percent in a company poll.
OPERATING COSTS
But despite topping forecasts, M&S, which serves 21 million Britons a week from over 650 stores and has about 300 shops abroad, said its full-year financial expectations were unchanged as the better trading was offset by rising operating costs.
The company said these would be towards the top end of its forecast range of up 4 to 5 percent because of an additional autumn/winter marketing campaign and higher sales volumes.
"We are facing increased commodity prices and significantly tougher comparatives in the second half. As a result we remain cautious about the outlook for the remainder of this year and next," it said.
M&S maintained its forecast for flat full-year gross margins despite freight, cotton and currency pressures and unlike rivals such as Next Bolland did not flag a significant rise in clothing prices for consumers.
M&S shares, which have lagged the STOXX 600 Europe retail index by 13 percent this year, were up 2.4 percent at 400 pence at 1052 GMT, valuing the firm at about 6.35 billion pounds ($10.1 billion).
"We expect the bottom end of the forecast range to move up but that overall forecast movements for 2010/11 earnings will remain relatively stable given upgrades seen in recent weeks," said analysts at Credit Suisse.
The consensus forecast for M&S's full-year pretax profit is around 702 million pounds according to Thomson Reuters I/B/E/S.
Bicycles to car parts retailer Halfords on Thursday posted a 6.3 percent sales drop, though Sainsbury said on Wednesday it thought austerity measures were already embedded into shopping habits.
M&S said its growth was driven by a 70-basis-point increase in market share in clothing, helped by new products such as the "2 sizes bigger" bra and "Miracle" crease resistant linen.
Food market share also rose 10 basis points, while online sales surged 49 percent.
Like-for-like general merchandise sales jumped 7 percent, while food sales rose 3.7 percent on the same basis.
Group sales were up 6.5 percent, including a 6.2 percent increase from international stores.
Bolland, who joined in May from grocer Wm Morrison, will outline his thoughts on future strategy alongside interim results on Nov. 9. He gave no hints on this beyond stating his plan was for "evolution not revolution". (Editing by David Cowell and David Holmes) ($1=0.6354 pounds)