LONDON (Reuters) - British clothing and food retailer Marks & Spencer (MKS.L) is expected to report its first rise in annual profit in four years next week, fuelling hopes that it has finally rediscovered a successful formula.
Shares in M&S, one of Britain's best known high street shopping chains, have risen by a third over the last nine months, hitting a seven-year high last month ahead of the earnings on May 20.
The increase reflects hopes that the billions of pounds Chief Executive Marc Bolland has spent on the redesign of products, stores, logistics and its website is paying off and addressing decades of under-investment in the 131-year-old firm.
Analysts expect M&S to report profit before tax and one-off items of 625-664 million pounds with a consensus of 648 million pounds in the year to March 28.
That's 4 percent ahead of the 623 million pounds made in 2013-14 but for the second year running would be less than the annual profit made by clothing rival Next (NXT.L).
Bolland, in the job since 2010, has focused on boosting profit margins, guiding to a rise in the 2014-15 gross margin for general merchandise -- spanning clothing, footwear and homewares -- of between 150 and 200 basis points.
That would be a reward for having sourced more goods directly from suppliers, spent less on promotions and concentrated more on full-price sales. An increase in the food gross margin of 10-30 basis points was also targeted.
M&S is expected to raise its dividend by 5 percent to 17.8 pence and has promised an update on other rewards for shareholders.
"We believe some indication of potential additional returns could be on the agenda," said analysts at Nomura, pointing to scope to return 250 million pounds in special dividends.
Last month M&S said fourth quarter sales of general merchandise rose 0.7 percent at stores open more than a year, the division's first positive performance in 15 quarters.
Underlying sales in the food business have outperformed the wider market with 22 consecutive quarterly rises.
Investors are now hoping the new clothing team Bolland set up in 2012 can deliver a sustained increase in sales.
When products have proved a hit, M&S has often struggled to replenish supplies fast enough to satisfy fashion-conscious shoppers. However, investment in the supply chain, marshalled by Hong Kong-based sourcing directors Neal and Mark Lindsey, means racks can be restocked more swiftly.
Bolland reckons shoppers are recognising the improvements M&S has made to product quality and styling. He said spring/summer 2015 ranges were "bang on trend", with a 199 pound suede skirt a major hit. Forthcoming 2015-16 autumn/winter ranges have also been well received by the fashion press.
Bryan Roberts, analyst at Kantar Retail, said an M&S recovery can only be proclaimed when it consistently reports growth in clothing sales.
"The occasional screamer into the top corner doesn't negate smashing the ball over the bar for the last four years," he said, using a soccer metaphor.
Reporting by James Davey; Editing by Keith Weir