Marks confident despite 34% fall in profits

Marks & Spencer is “well equipped” to cope in a recession, despite reporting a 34% fall in half-year profits and warning conditions would remain tough for most of 2009, boss Stuart Rose said today.

The group described current trading as “volatile” and said its key priorities were focused on tackling costs and being more competitive in food.

M&S’s annual profits topped £1bn (€1.2bn) for the last financial year, but analysts expect a figure closer to £650m (€806m) in the current period after half-year results published today showed a 34% decline to £297.8m (€369m).

As previously announced, like-for-like sales fell 5.7% in the six months to September 27 after trading conditions deteriorated, particularly as shoppers looking to save on food bills snubbed M&S’s premium goods.

The company said it was in the toughest trading climate since the early 1990s.

Rose, M&S’s executive chairman, added: “I think everybody recognises that 2009, and probably right the way through 2009, is going to be tough. Now we are in a recession we are well-equipped to deal with it.”

He held out hopes that lower interest rates – provided cuts are passed on to borrowers – will improve consumer confidence.

“Maybe at the back end of 2009 we’ll see blue skies,” Rose added. He remained upbeat about the festive season, saying: “People will want to have a traditional Christmas and look after themselves.”

But he thought customers were “moving away from frivolity” when it came to present shopping.

“People don’t want trivia. It’s the same with clothes – people are buying more sensibly”.

The company’s Christmas TV commercial, which hits screens next week, features Take That donning its menswear range, as well as the familiar female M&S models such as Mylene Klass, Lily Cole and Twiggy.

Marketing executive director Steve Sharp said the boy band “strike very well with the target audience”.

But with the group planning to reduce marketing spend by 20% in 2009/10, he could not confirm if the same famous names would be still be modelling for M&S this time next year, saying “everything is under review”.

M&S shares rose almost 9% after the company maintained its half-year dividend and analysts said the figures were slightly ahead of expectations.

Rose said he planned to manage the business through the downturn by tightly controlling costs, capital expenditure and stock levels.

He added: “We are confident we have the right plan to bring M&S through these difficult times.”

In food, where the company’s market share has declined to 4%, M&S has “realigned” prices on 530 of the products.

It said its “Dine in for £10” promotion and weekend offers were starting to drive footfall and had encouraged renewed interest from the “more occasional customer”. The changes came at the expense of margins, which were 1.7% lower than last year at 32.1%.

Rose said the group had plans for fewer, larger food promotions, admitting some recent promotions “weren’t sharp enough off the block” given the tough market conditions.

M&S said its clothing market share was steady at 10.9% as it maintained its position as the UK’s leading clothing retailer by value and volume. It plans to strengthen its position in the over-45s female market with the addition of a new brand, Portfolio, next spring.

M&S is to cut capital expenditure to £700m (€868m) this year and to £400m (€496m) next year as the company switches its attention away from store modernisation and expansion to investment in its supply chain and IT.