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Marks & Spencer in the black for the first time in four years Marks & Spencer reveals rise in profits and share buy-back
(38 minutes later)
Marks & Spencer reported its first rise in annual profit for four years on Wedesday. The City has welcomed the first profit of Marks & Spencer chief Marc Bolland’s reign, but warned there is a long road ahead for the British retail giant.
Marks and Spencer said pretax profit was £661.2 million in the year to March 28, ahead of consensus estimates and up over 6% on the £623 million it made a year earlier. M&S cheered investors with a better-than-expected 6.1 per cent rise in headline profits to £661m, helped by the first quarter of growth in clothing and homeware sales for 15 quarters.
It also said it would return more cash to shareholders, upping its dividend by almost 6% to 18p. It also unveiled a £150m share buy-back, the first time the retailer has returned cash to investors this way since Sir Stuart Rose, the former chief executive, halted a £600m scheme in 2008. But its shares failed to hold on to early gains, ending down 2p at 583.5p.
Shareholders will also be treated to further enhanced returns in coming years and a share buyback of £150 million for the next financial year. Mr Bolland admitted that the year to March had been disappointing, with clothing sales hit by the warm weather in the autumn and online distribution problems at Christmas. But he forecast an increase of between 1.5 per cent and 2 per cent in profit margins for its clothing and homewares arm in the current year, as those problems were left behind.
“We are a more capable business following a sustained period of investment in our infrastructure and in our people,” said Chairman Robert Swannell. The Dutch boss has been reworking M&S’s supply chain – in partnership with the Hong Kong-based Lindsey brothers – and its website, to offer speedy service to customers shopping in store, at home or on the move.
The upbeat results will provide some welcome relief for chief executive Marc Bolland, whose leadership had come under fire after a disappointing few years at the high street chain. An improvement in fourth quarter like-for-like clothing sales is thought to be a turning point in Mr Bolland’s battle to turn round its performance. M&S’s fashion credentials were given a boost in March when presenter and model Alexa Chung and New York socialite Olivia Palermo were both photographed wearing a £199 Seventies-style M&S suede skirt.
Non-food sales had been consistently slipping, despite Bolland having ploughed billions into improving the company's vast infrastructure and upgrading its fashion ranges. But analysts warned that the nascent recovery had a long way to go. Espirito Santo analyst Tony Shiret said: “The company has created more insurance for itself in the near term through improving supply terms in clothing, while it gradually tries to improve the key clothing sales performance. This will ultimately determine whether the recovery is real or ‘manufactured’ and determine sustainability of the business model.”
His plan to bump up profit margins now appears to be working, as the gross margin at its general merchandise division - which includes clothing, footwear and homewares - rose 190 basis points. Begbies Traynor partner Julie Palmer said: “M&S still has some way to go if it is going to live up to the example set by its close rival, Next. While M&S may outperform in revenue terms, Next wins hands down when it comes to profits.
Shares in the company recently hit an eight-year high, reflecting greater confidence about the strategy. “However, the question now on everyone’s lips is: after proving his worth in arguably the toughest job in high street history, will Marc Bolland quit while he’s ahead and seek out new challenges? After all, fashion is a fickle business.”
They were last off 0.4% at 583p. Mr Bolland, who was poached from Morrisons in 2010, dismissed any suggestion that he might step down from M&S. When asked if he expected to be there in a year’s time, he answered “absolutely”.
Additional reporting by Reuters He also said that British businesses should wait and see what level of reforms will be achieved by David Cameron in Europe before rushing to judgement on any vote to leave the EU, as debate rages in the City over the UK’s future and the impact on business.