London: Marks & Spencer, Britain’s No.1 clothing retailer, said it was cautious about the outlook for consumers ahead of expected tax rises, as it posted a smaller rise in annual profit than most of its major rivals.
The 126-year-old group, which also sells food and homewares, said on Tuesday it was taking market share in clothing and had made a satisfactory start to its new financial year.
New chief executive Marc Bolland told reporters he would outline his initial plans to revive M&S’ upmarket food business and take the fight to fast-growing clothing discounters like Primark when interim results are published in November.
Bolland gave no clues as to what he may have in mind, beyond stating he cherished M&S’ “heritage and values”.
He joined the firm earlier this month with a £15 million ($21.45 million) pay package, having previously turned around Wm Morrison Supermarkets through a mixture of marketing, product innovation and business systems improvements.
“He (Bolland) said that he wants time to absorb the business and decide what needs to be done and decide whether he wants to push in that area or pull back in other areas,” said executive chairman Stuart Rose, who declined to comment on speculation that M&S may raise capital to finance Bolland’s changes.
At 0847 GMT M&S shares, which have underperformed the STOXX 600 European retail index by 16% this year, were down 0.84% at 330.6 pence, slightly outperforming both the European sector index and the UK’s FTSE 100.
“We see better value and visibility elsewhere such as Next and Debenhams and feel the shares will drift until Bolland sets out his strategic vision for the business,” said Shore Capital analyst Kate Calvert.
Cautious on consumers
Britain’s retailers are emerging from a deep recession but fear steps to rein in a record state deficit, like higher taxes, will hit consumer spending in the months ahead.
“Consumers are naturally concerned about any impact of the Budget on 22 June,” said Rose.
“We all have to take our medicine. Everybody, when they voted for this (new Conservative-Liberal coalition) government, knew that we would be in for some pretty radical changes in terms of taxation. I think we are well placed to deal with it.”
Although Rose was cautious about the outlook for the year ahead he did not think the British economy would fall back into recession and was confident M&S would stay in growth.
M&S, which serves 21 million Britons a week from over 650 stores and also has about 300 shops abroad, said profit before tax and one-off items rose 5% to £632.5 million in the 52 weeks ended 27 March.
That was just ahead of analysts’ average forecast of £628 million in a company poll, helped by a 30 basis-point increase in clothing market share to 11%.
But it falls short of the rises posted by rivals like Next, Debenhams and John Lewis, and underscores the challenges facing Bolland as he looks to rebuild profits towards the £1 billion achieved in 2007-8.
After a particularly tough recession, M&S has fought back by introducing lower-priced “Wise Buys” in food and new clothing ranges like Indigo.
Shore Capital’s Calvert expects profits to rise to £660 million in 2010-11 and thinks this might increase by 10-15 million due to lower financing costs on M&S’s pension.
M&S’s sales rose 3.2% to £9.3 billion and the firm cut its annual dividend to 15 pence a share from 17.8 pence the year before, in line with previous guidance.
Rose, brought into M&S to fend off a 400 pence-a-share bid from retail billionaire Philip Green in 2004, is due to relinquish his executive functions at the end of July and leave the company by the end of March 2011.
He told reporters he was “absolutely flexible” about the timing of his departure, signalling he could go earlier if a new chairman was appointed quickly.
“Marc and I have got an important agenda to get through in the next few months. When he’s decided he’s had enough of me and, indeed, we’ve named a new chairman, I will move on,” he said.