July 1 (Bloomberg) -- Marks & Spencer Group Plc, the U.K.’s biggest clothing retailer, reported its smallest quarterly sales decline in almost two years as promotional offers and warmer weather boosted sales of summer fashions and food.

Revenue at U.K. stores open at least a year fell 1.4 percent in the 13 weeks ended June 27, London-based M&S said today, beating the 2.5 percent average estimate of 16 analysts surveyed by the company. M&S shares rose 3.8 percent.

Executive Chairman Stuart Rose said the retailer witnessed some “trading up” as shoppers returned to premium brands after economizing during the recession. Rose, speaking on a conference call, said the best-selling goods are still low-priced, such as the ‘Wise Buys’ lasagna meal for 1.99 pounds ($3.27).

“They’ve benefited from the more robust consumer,” said Kate Calvert, an analyst at Shore Capital, who raised the shares to “hold” from “sell” today. Same-store sales may start increasing in coming quarters, she said.

The sales drop was the best performance since revenue increased in the second quarter of fiscal 2008. The value offers, introduced last year, now account for 18 percent of food sales. Marks’ same-store sales have fallen for seven straight quarters, causing profit to slump and the retailer to cut the dividend for the first time in nine years.

Shares Rise

M&S said confidence “appears to be stabilizing,” though it remains “cautious” about the outlook for consumer spending. “We do see some stability,” Finance Director Ian Dyson said in a Bloomberg Television interview.

M&S shares added 11.5 pence to 317.5 pence in London, the highest in more than a month. The stock has rallied 48 percent this year after plunging 62 percent in 2008. Shares of rival Tesco Plc, Britain’s biggest retailer, are unchanged in 2009 after a 25 percent drop last year.

Marks’ U.K. food sales fell 0.5 percent on a same-store basis, compared with the 2.4 percent average estimate of eight analysts surveyed by Bloomberg News. John Lewis Partnership Plc, which also owns the Waitrose grocery chain, has reported sales growth for the past nine weeks, driven by warmer weather.

Revenue in Marks’ so-called general merchandise unit, which includes clothing and home furnishings, declined 2.4 percent, beating the 3.5 percent average estimate.

Rose will preside over the annual general meeting on July 8 and is expected to face criticism from investors unhappy that he holds both the chairman and chief executive roles. The Local Authority Pension Fund Forum, which represents 49 public sector pension funds, has said it wants an independent chairman by July 2010, a year ahead of Marks’ schedule.

“It’s the usual annual little jamboree running up to the AGM, and frankly I’m not concerned about it,” Rose said today. “We will have a new CEO next year, and I will go by July 201l.”

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net.

Last Updated: July 1, 2009 12:21 EDT