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Brighter outlook for M&S chief after first profit rise in four years
May 20, 2015 / 6:13 AM / 3 years ago

Brighter outlook for M&S chief after first profit rise in four years

LONDON (Reuters) - British retailer Marks & Spencer (MKS.L) raised hopes that it has finally rediscovered a winning formula as it reported a rise in annual profit for the first time in four years and pledged to return excess cash to shareholders.

After a poor Christmas, the results 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 he said he had no plans to depart any time soon, telling reporters he “absolutely” expected to present results this time next year.

“The coming years there’s a lot to do and I‘m enjoying it,” he said on Wednesday.

M&S said it expected to deliver better gross margins - the difference between the price it buys goods and the price it sells them - in its key clothing business over each of the next three years as it benefits from sourcing more goods directly from suppliers and lower levels of discounting.

Britain’s biggest clothing retailer, which also sells homeware and upmarket food, posted a profit before tax and one-off items of 661.2 million pounds ($1 billion) in the year to March 28, up 6.1 percent and above a consensus analysts’ forecast of 648 million pounds.

M&S, one of Britain’s best-known shopping chains, raised its dividend 5.9 percent to 18 pence and announced the start of a programme of enhanced shareholder returns with a 150 million pound share buyback for 2015/16.

For the second year running, however, the outcome was less than the annual profit at clothing rival Next (NXT.L) and well short of the 1 billion pounds made by M&S in its 2007/08 financial year.

Shares in M&S have risen over a third over the past nine months and hit an eight-year high on Wednesday, They were up 0.3 percent at 588 pence by 1303 GMT, against a flat FTSE 100 index .FTSE.

The rises reflect hopes that the billions of pounds spent by Bolland on the redesign of products, stores, supply chain logistics and the website is paying off and addressing decades of underinvestment in the 131-year-old business.

RIGHT DIRECTION

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“We clearly made a step in the right direction,” said the Dutchman. “You cannot think that you can trade a business hard when you don’t have the infrastructure.”

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. He is targeting further growth of 1.5 to 2 percentage points this financial year and further, unquantified, gains over the following two years.

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. It reckons spring/summer 2015 ranges are “bang on trend”, with a 199 pound suede skirt a major hit.

    “With general merchandise now positive and...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 say it’s too early to predict a lasting turnaround at M&S.

    “It would be wrong in our view to over interpret these results as being ‘all the problems are sorted’,” said BESI Research analyst Tony Shiret.

    Underlying sales in the M&S food business have outperformed the wider market with 22 consecutive quarterly rises.

    Gross margin on food rose 0.3 percentage points in 2014/15 and is forecast to grow up to a tenth of a point in 2015/16. M&S raised the target for new Simply Food stores from 200 to 250 in the three years to March 2017.

    M&S cautioned that its international business will be hit in the short term by the weaker euro and macroeconomic backdrop, particularly in its Middle East region, but flagged long-term opportunities across several markets, including France and India.

    ($1 = 0.6454 pounds)

    Editing by Kate Holton and David Goodman

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