M&S turns corner as it heads back into black

Marks & Spencer has raised hopes that it has finally rediscovered a winning formula. Yesterday, it reported a rise in annual profit for the first time in four years and its intention to return excess cash to shareholders.

After a poor Christmas, the results also ease the pressure on Marc Bolland, chief executive since 2010.

Some observers have suggested that recent improvement in the M&S share price offer an opportunity for him to leave on a relative high, but Bolland said he had no plans to depart any time soon, telling reporters he expected to present results this time next year.

M&S posted a profit before tax and one-off items of £661.2m (€927m) for the year to the end of March, up 6% year-on-year and above a consensus analysts’ forecast of £648m.

The retailer also raised its dividend 5.9% to 18p and announced the start of a programme of enhanced shareholder returns with a £150m share buyback for 2015/16. For the second year running however, the outcome was less than the annual profit at clothing rival Next and well short of the £1bn made by M&S in its 2007/08 financial year.

Shares in M&S, one of Britain’s best-known shopping chains, have risen by more than a third over the past nine months and hit an eight-year high yesterday. The rises reflect hopes that the billions of pounds spent by Bolland on the redesign of products, stores, supply chain logistics and website is paying off and addressing decades of underinvestment in the 131-year-old business.

“We’ve always said this is a step-by-step approach,” Bolland said yesterday, adding that the measures taken leave the company well placed to strengthen its turnaround. Bolland has focused on boosting profit margins and delivered a rise in the 2014/15 gross margin for general merchandise — spanning clothing, footwear and homeware — of 1.9 percentage points.

The company is targeting growth of 1.5 to 2 percentage points this financial year, which would be a reward for having sourced more goods directly from suppliers, spent less on promotions and concentrated more on full-price sales. Last month M&S said fourth-quarter sales of general merchandise rose 0.7% at stores open more than a year, representing the division’s first positive performance in 15 quarters.

“With general merchandise now positive and, we believe, set to remain so for much, if not all, of 2015-16, more exciting times could be ahead for shareholders,” Shore Capital analyst Clive Black said.

However, some analysts still see major challenges ahead. “The elephant in the room continues to be M&S’s ability, or lack thereof, to recruit and retain younger shoppers,” said Bryan Roberts, of Kantar Retail. Underlying sales in the food business have outperformed the wider market with 22 consecutive quarterly rises.

  • Reuters


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