M&S shares test two-year highs

Shares in troubled retailer Marks and Spencer jumped almost 10% after it revealed its first quarterly sales increase in three years.

The store group recorded a 2.8% increase in the second quarter of its financial year.

The figures took City analysts by surprise and were being interpreted in some quarters as the first sign of a turnaround in the retailer's fortunes.

Chairman and chief executive Luc Vandevelde, who joined the company 18 months ago, said it had "made a step in the right direction."

Investors welcomed the news, and M&S shares jumped 15.9% to 324p in early trade.

The stock last closed above 320p in January last year, and has not ended above 331.5p since September 1999.

By the close of trade, the shares had settled back to finish up 27.5p, or 9.8%, at 307p.

Best performer

M&S shares reached a 10-year low in 2000, but so far this year they have bounced back 50%, making them by far the best performers in the FTSE 100 index of blue chip shares.

The price has been helped by the company buying back its own shares.

But most analysts have been reluctant to recommend buying M&S shares, as the company's profits have more than halved since 1998, when they topped £1bn.

The shares are still viewed as being expensive by the standards of the sector.

However, sentiment will be improved by signs of an increase in sales.

Core customers

Mr Vandevelde said M&S had benefited from its decision to focus on its core customers with a new range of classically stylish clothes.

M&S launched a Classics Collection and Perfect Basics for the autumn and said there had been a "steady improvement" in performance throughout the quarter.

Per Una, the womenswear range designed by George Davis, only contributed two days of sales to today's results.

The latest figures show a 0.8% rise in sales of clothing and footwear in the 12 weeks ending on 29 September, compared with the same period a year ago.

Overall group sales were up 2.8% overall or 2.1% on a same-store basis, which excludes new stores.

Food sales contributed heavily to the growth, rising 4.9% during the three month period.

New range, improved quality

Mr Vandevelde, who famously gave himself two years to turn M&S around, said: "We have been encouraged by the response of our customers to the improvements we have made to the appeal, quality and fit of our clothing."

Initial customer response to the launch of the Per Una range has been "very positive", the company said.

However, some analysts say that Tuesday's figure did not necessarily indicate recovery at M&S.

Comparative figures for last September were skewed lower by the fuel dispute.

The store also warned that it was cautious about the current economic environment, and warned that the crucial Christmas trading period may be impacted.