LONDON (Reuters) - British retailer Marks & Spencer (MKS.L) is set to post a rise of just 4 percent in annual profit on Tuesday lagging rivals and underscoring the challenges facing new chief executive Marc Bolland.
The performance of Britain’s biggest clothing retailer, while a vast improvement on the 40 percent plunge in earnings last year, trails the increase in profits delivered by rivals like Next (NXT.L), John Lewis JLP.UL and Debenhams (DEB.L).
It is also likely to be overshadowed a day later, when luxury group Burberry (BRBY.L) is tipped to post a 17 percent rise in annual profit, helped by its geographical diversity.
Britain’s retailers are emerging from a long and deep recession. Government data on Thursday showed a slightly bigger-than-expected 0.3 percent monthly rise in sales volumes in April.
However, store groups fear steps to rein in government borrowing, like higher taxes and public spending cuts, could dampen consumer confidence in the months ahead.
Marks & Spencer (M&S) was hit particularly hard in the recession as it struggled to hold onto clothing market share amid the challenge from discounters like Primark. It also admitted it was too slow to adapt its upmarket food business.
The firm has since fought back, introducing lower-priced “Wise Buys” in food and new clothing ranges like Indigo.
Fourth-quarter sales, posted last month, smashed forecasts.
But the group said profits for the year ended March 27 would be within analysts’ existing forecast range of 620-630 million pounds, held back by a larger-than-expected staff bonus and a rise in operating costs.
It also said gross profit margins would be broadly flat in 2010-11 and operating costs would rise 4-5 percent, signalling it will be a long haul for Bolland, who joined M&S at the beginning of May, to lift profits back to the 1-billion-pound level achieved in 2007-8.
Analysts’ average forecast is for profits to rise from 627 million pounds in 2009-10 to 666 million pounds in 2010-11, according to data provided by the company.
Analysts expect Burberry, the 154-year-old maker of upmarket raincoats and handbags, to report profit before tax and one-off items of 205 million pounds for the year ended March 31, according to the average forecast of 15 polled by Reuters.
Earnings are tipped to rise to 238 million pounds in 2010-11 as the group, best known for its camel, red and black check, opens more shops and steps up its expansion in growth areas like childrenswear and leather goods.
Burberry shares have beaten the STOXX 600 European personal and household goods index .SXQP by 6 percent this year. They trade at 16.3 times earnings forecasts for 2010-11, compared with rival LVMH (LVMH.PA) on 18.6 times forecasts for 2010.
M&S shares have underperformed the STOXX 600 European retail index .SXRP by 16 percent this year. They trade at 10.8 times earnings forecasts for 2010-11, above Next on 9.7 times, according to Reuters data.
On Thursday, British sportswear retailer JJB Sports JJB.L, which came close to administration last year, is expected to post a wider pretax loss of about 60 million pounds for the year to end-January 2010, according to Thomson Reuters I/B/E/S.
(Editing by Sharon Lindores)