M&S better than expected as growth slows down

Jul 11 2007 by Holly Williams, Liverpool Daily Post

RESURGENT retailer Marks & Spencer shrugged off fears over extreme weather conditions and interest rates to report a rise in first quarter sales yesterday, albeit at the slowest pace for 18 months.

The group posted like-for-like sales growth of 2% for the three months to June 30, surprising both investors and analysts, who were bracing themselves for a trading slump.

But while the high street giant’s figures were better than expected, the sales growth was the worst recorded for six quarters as M&S battled against wet weather conditions and uncertainty over consumer spending after five rate hikes in less than a year.

The group’s sales figures – seen as an insight into the wider health of high street trading – compare with a rise of 8.2% in the first quarter of last year.

Food sales saw only marginal growth over the past three months, rising by 0.7% on a like-for-like basis, although the group posted a 2.9% rise in like-for-like sales of general products as shoppers turned to homewares in the dull weather.

Stuart Rose, M&S chief executive, said he was “pretty pleased” with the results, given the adverse conditions faced by the chain and disruption caused by a sweeping store refurbishment programme.

He added that trading would remain “very challenging” in the short-term, but would not derail its recovery plans.

The retailer only recently made a return to health after almost a decade of depressed sales.

M&S reported a 28.5% rise in annual profits to £965.2m in May, close to the £1bn seen in 1998 before the group hit more troubled times.

The firm stressed yesterday it would push on with store openings and its refurbishment programme, with plans to expand its retail space by 4.5% this year.

M&S also hopes to revamp 70% of its store portfolio in time for the “critical” Christmas period.

Charles Stanley retail analyst Sam Hart said: “The outlook clearly remains uncertain, as consumers start to feel the full impact of recent interest rate increases.

“Marks & Spencer, however, is one of the more defensive UK retailers and therefore is probably amongst the best positioned to deal with a slowing consumer environment.”

Analysts raised concerns that margins may have suffered as the group sought to drive sales, although M&S insisted it was “managing stock very tightly” and had yet to kick off its mid-season sale, expected in the next few weeks.

The trading update comes as speculation mounts over the reported planned departure of M&S’ Per Una womenswear range designer George Davies, who has been credited with playing a large role in the group’s recent renaissance.

Weekend press reports suggested that the fashion designer would not be renewing his contract when it expires later this year, which could strike a blow to M&S, given the success of the Per Una range.

M&S faced shareholder pressure over its executive pay plans at the group’s Annual General Meeting yesterday.

More than 5% of shareholders voted against its executive pay proposals and grilled M&S bosses over this year’s bonus scheme which could see Mr Rose earn up to £4.2m this year on top of his £1.05m salary.

One shareholder said: “There have been some beautiful bonuses handed to the board but down on the shop floor they’ve not been so good. Have you not heard of inflation, because you certainly gave it to the shop floor this year.”

M&S chairman Lord Terry Burns said: “I think the targets are stretching for a company that has already delivered a sharp rise in earnings. It’s very important for this company that the rewards for the key leadership team reflect their achievements. When performance is outstanding, this will be reflected in good bonuses.”

He stressed that M&S has, over the past two years, also paid £50m to general staff in bonuses.