M&S on track for recovery

M&S has prospered by shedding its dowdy image

A dramatic surge in sales is likely to pay dividends for investors in Marks & Spencer, which is due to announce annual results on Tuesday.

Over the past few months, M&S has unveiled a series of stellar trading reports, showing sales up by as much as 11% early this year.

Now, analysts predict that the retailer should report pre-tax profits of some £630m for the 2001/02 financial year, and will be picking over the figures to see whether the boom is likely to last.

If the profits target is achieved, it will represent a major turnaround at the once-ailing retail giant, and a triumph for chief executive Luc Vandevelde, the man brought in to revive M&S's fortunes.

But analysts still warn that the company is far from wholly out of the woods.

Changing fortunes

Part of M&S's turnaround is due to the robust performance of the UK High Street, which has seen most major retailers prosper in the past year.

Mr Vandevelde is feeling cheery

But the firm has also moved quickly to shake up its dowdy reputation.

A tighter focus on quality clothing, especially for women, has paid off, with sales in its apparel and footwear segment up 17% this year.

At the same time, it has moved to fragment its current department store offering, where most outlets sell food, clothes, gifts and some homeware.

M&S has already launched food-only shops, and is reported to be planning homeware-only outlets, too.

Investment in smarter, brighter British stores has been paid for by slashing the company's overseas store network, once a key - and expensive - part of its strategy.

Details, details

Analysts expect few surprises from M&S's profit figure, since the company has so recently given detailed sales breakdowns.

Instead, they will be closely watching news on retail margins, a key issue for retailers in a competitive environment.

M&S's margins are likely to be healthy, since sales are increasingly focused on high-value womenswear.

But any disappointing news on margins could be cruelly punished.

Maintaining momentum

M&S's problem is that expectations have been high for long enough to make it a stellar stock market performer - among the very best on the London Stock Exchange last year.

In order to keep pushing its share price higher, M&S will have to exceed already buoyant expectations.

Over the past few days, a number of brokerage houses have downgraded the share from a "buy" to a "hold", indicating that most of the value of the turnaround has already come out.

Some analysts warn that M&S will need some fruitful new sources of revenue - possibly via a major acquisition, or new line of business - if it is to maintain its momentum.