Kingfisher, Marks & Spencer, Dixons Retail and Dunelm are among brokers’ retail stock picks for 2011.

Broker UBS, which expects the trading environment to be difficult this year, pinpointed store groups with self-help potential and overseas operations to be among the likely winners.

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UBS analysts maintained: “2011 looks set to be another tough year for consumer spending, with inflation in many areas of fixed spending - petrol, food, gas, insurance as well as VAT - potentially affecting discretionary purchases.

“Those with pure UK exposure may struggle more. We would prefer those with overseas exposure such as Kingfisher, Signet and Carphone Warehouse or credible self-help plans [such as M&S].”

Kingfisher and M&S are the broker’s top picks “as they both offer the potential to see operating margin improvement through a combination of stronger gross margin and cost savings and both offer a degree of non-UK exposure.”

The broker expects underlying like-for-like growth from M&S over Christmas of 4% in general merchandise and 3% in food and said: “The headline numbers could look scarily good although we will need to allow for the timing of the Sale.”

UBS fears the prospects for UK electricals groups are poor and market leader Dixons Retail, owner of Currys and PC World, is one of its least-preferred stocks.

But Execution Noble selected Dixons Retail as one of its favoured shares for the year. The broker said: “Dixons is set to deliver approximately 50% earnings growth over the next three years as a result of its renewal and transformation plan.

“Our survey work has shown consumers rate the new Currys format as superior to the competition for price, range and service. With more than 60% of sales going through these new formats over Christmas, we think Dixons Retail will win market share in the UK as consumers experience the step-change and favour destination status stores.”

Peel Hunt believes value homewares specialist Dunelm should do well during tough times and said: “While we expect disposable incomes to fall again in 2011, we believe retailers face broadly similar conditions to 2010.

“We see retail share prices moving backwards overall for the first quarter, reflecting a lull in trading following the VAT rise and economic concerns. We continue to view this as a buying opportunity for the small number of retailers offering structural growth, such as Dunelm.”