M&S underlying sales beat forecasts

LONDON Wed Jul 1, 2009 12:40pm BST

A Marks and Spencer sign is seen outside a branch of the store, in London on October 1, 2008. REUTERS/Luke MacGregor

A Marks and Spencer sign is seen outside a branch of the store, in London on October 1, 2008.

Credit: Reuters/Luke MacGregor

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LONDON (Reuters) - Marks & Spencer posted a smaller-than-expected drop in first-quarter underlying sales, boosting its shares, as Executive Chairman Stuart Rose says he was "not concerned" by a row over his succession.

The 125-year-old retailer, which sells clothes, homewares and food from over 600 stores in Britain and about 285 abroad, said on Wednesday consumer confidence appeared to be stabilising, but it remained cautious about the future.

"We all know that there's more taxation coming in next year. We all know that unemployment will still go up, but maybe by less. We all know that VAT (value added tax) is going up," Rose told reporters.

"I think people are less un-confident, but they're certainly not (...saying) we're through this, and we're not through this."

Britain's retailers are battling the deepest recession in decades. Industry sales are falling and a raft of companies in the sector have posted slumps in annual profit.

Marks & Spencer (M&S), Britain's biggest clothing retailer, said sales at UK stores open over a year fell 1.4 percent in the 13 weeks to June 27, after a fourth-quarter drop of 4.2 percent.

That was the seventh quarterly fall in sales in a row, but also the best performance since the second quarter of its 2007-08 fiscal year as new products and promotions drove market share gains. Analysts had forecast a fall of 1.8-3.5 percent.

The improvement is unlikely to relieve the pressure on Rose, under fire for combining the roles of chairman and chief executive last year against corporate governance guidelines.

He survived an investor rebellion last July, but faces fresh calls to appoint an independent chairman by this time next year at a shareholder meeting on July 8.

"My job along with the board is to concentrate on running the business, getting it through the recession, doing the hard nitty-gritty work in the engine room... and frankly I'm not concerned about it (the succession row)," Rose told reporters.

He said the board's position on succession -- that it will appoint a new chief executive next year and that Rose will step down as chairman by July 31, 2011 -- had not changed.

He declined to comment on reports that deputy chairman David Michels had put himself forward as a possible successor as chairman, other than saying he would be a "very credible candidate" when the board decided to appoint a new chairman.

SHARES HIGHER

Shares in M&S were up 4.6 percent at 320.2 pence at 12:11 p.m., valuing the business at about 5.1 billion pounds.

The stock has lagged the DJ Stoxx European retail index by 9 percent over the past year, but has climbed about 50 percent this year on recovery hopes.

"They're (the Q1 numbers) better than expected. But the weather's been good, the comps (comparative figures from last year) softer and they've been cutting prices. So it's difficult to give them too much credit," said Pali International analyst Nick Bubb, who has a "sell" rating on the shares.

M&S has admitted it was slow to respond to the downturn, particularly in its upmarket food business, but has since made changes, introducing new products, price cuts and promotions.

It said it planned to relaunch its confectionery range in September, which will include new products like "pick 'n' mix" -- a favourite at the collapsed Woolworths chain.

Rose said the group's lowest-price "wise buys" range had grown to account for just under 20 percent of all food sales.

Negative publicity over plans to charge more for large-sized bras had also been turned to the group's advantage. Its "we boobed" campaign saw over one million bras sold in its first week and lifted lingerie market share to 26 from 25 percent.

Like-for-like general merchandise sales, spanning clothing and homewares, were down 2.4 percent, against a forecast drop of 3-5 percent. Food sales on the same basis were down 0.5 percent versus an expected decline of 0.5-4.2 percent.

Finance director Ian Dyson said UK gross margin guidance for the year was unchanged at down 125 to 175 basis points.

(Additional reporting by Simon Falush, Editing by Erica Billingham and Mike Nesbit)

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