Rose breathing a sigh of relief as M&S comes through worst

Simon English
30 Sep 2009

Marks & Spencer chairman Sir Stuart Rose gave evidence today that he has dragged the retailer through one of the toughest periods in its 125-year history.

The retailer has seen its position as a staple of the UK high street attacked by online start-ups, powerful supermarkets and a swirling recession.

Sir Stuart's role has also faced intense scrutiny, with some investors complaining his position as executive chairman gives him too much power and breaks corporate governance rules. Today M&S said sales across the group are up 2.7% in the last quarter, the 13 weeks to 26 September.

Although like-for-like sales, the most closely watched measure because it strips out the effect of new store space, were down 0.5%, that was at the top end of City expectations.

That fall in like-for-likes is the eighth quarterly drop in a row. It is still the best performance for two years, an indication of how tough M&S has found the economic downturn. Rose was able to brag today that margins have improved thanks to better stock control. That could be worth up to £50 million of extra profit by the year-end, analysts were guessing this morning. M&S is expected to make around £600 million this year.

The shares, however, dropped 4¾p to 370p in early trading.

Rose said: “We are pleased to report continuing improvement in our performance. This demonstrates that the actions we are taking are working.”

He was far from optimistic that the wider economy will keep recovering, however.

“Whilst there is more visibility in the market place and consumers appear more confident, we continue to be cautious about the outlook. We expect 2010 to be a tough year and we will continue to run the business accordingly,” he said.

The internet arm, M&S Direct, is having a particularly strong run with sales climbing 30%.

Clothing sales are up 2.7% and food sales rose 1.7%.

The food business has been criticised as far too expensively priced for a recession. Rose fired food boss Steve Esom last year in response and has since moved to reprice the goods.

M&S offered some aid for the youth unemployment crisis. It is launching a nationwide recruitment drive to take on 20,000 staff at stores this Christmas. It said it is looking for “friendly and enthusiastic” employees. It risked upsetting some customers last week when it slashed its famed 90-day returns policy to 35 days.

Since 2005 the store had offered a three-month “no quibbles” refund.

Luca Solca, an analyst at Bernstein Research with an outperform rating on the shares, said: “UK consumers are coming back to the high street. The marked trend towards trading down may have started reversing.”

Sir Stuart agreed that sentiment is improving. “Consumer confidence has reached the bottom. People feel better about life,” he said. Internal candidates to replace Rose at the helm and become the next chief executive will make presentations to investors next month.

They include food boss John Dixon, finance chief Ian Dyson and head of clothing Kate Bostock.