Marks & Spencer, Britain's leading clothing retailer, cut its sales forecasts Tuesday after reporting that lower general merchandise sales contributed to a 16 percent fall in full-year net profits.

For the year ending March 31, Marks & Spencer said its net profit was 513 million pounds ($809 million), down from 612 million pounds a year earlier.

The results beat analysts' forecasts, however, as the company generated a profit of 50.7 million pounds from its financial services division, about 10 million pounds better than expected.

Marks & Spencer shares were up 0.7 percent at 340.5 pence in afternoon trading.

"Profits have surprised to the upside," said Keith Bowman, analyst at Hargreaves Lansdown Stockbrokers.

Overall, group sales rose 2 percent to 9.9 billion pounds.

In its main U.K. market, the company said same-store sales rose 0.3 percent with food sales rising by 2.1 percent. General merchandise sales were down 1.8 percent.

As expected, M&S downgraded its medium-term forecast for sales from a range of 1.5-2.5 billion pounds predicted in November to 1.1-1.5 billion pounds through 2014, attributing this to a deterioration of the economic environment.

"We believe there are better investment opportunities elsewhere in the sector and consider that earnings growth will be pedestrian over the next two years," said Freddie George, retail analyst at Seymour Pierce in London.

Chief Executive Marc Bolland said the company "performed well in a challenging economic environment, growing group sales by 2 percent and holding market share."

By the end of the Year, Bolland said M&S will be selling from 10 websites around the world and opening about a hundred stores per year outside the U.K.