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Tuesday, 21 May, 2002, 16:25 GMT 17:25 UK
M&S 'turns corner' as profits soar
Marks & Spencer shoppers - holding an umbrella
M&S has weathered the downturn in fine form
UK clothing retailer Marks & Spencer has continued its turnaround with a 30% rise in profits.

The company, which only a year ago was thought to be in terminal decline, has come back with a vengeance, as sales of its new clothing ranges have restored its traditional popularity.

"We have made good progress and I believe that we have turned the corner

Luc Vandevelde
M&S chairman and chief executive
Pre-tax profits for the 12 months to March 2002 were 646.7m, up from 494.8m the year before and comfortably ahead of most analysts' expectations.

Sales also rose by a much more modest 3.8% to 7.62bn, indicating that M&S is cutting its costs sharply.

After the boom

But while the company said it saw the UK's clothing market remaining strong, it warned that the consumer boom of recent months was too good to last.

"We have made good progress and believe that we have turned the corner," said chairman and chief executive Luc Vandevelde, the man credited with masterminding M&S's renaissance.

M&S chief executive and chairman Luc Vandevelde
Now the turnaround is working, what next for Vandevelde?
"However, I recognise that our performance was helped by the buoyant High Street trading conditions and now our task is to secure the recovery and build for our future."

The performance has certainly cheered the City in recent months. While the FTSE-100 index of leading shares has drifted 8% lower in the past year, M&S shares are up 90% in the same period.

Even so, M&S shares were down in London, closing 3.7% lower at 396p.

Analysts pointed out that at that price, its earnings looked a little less impressive.

"For a physically mature UK retailer facing weaker market growth and the risk of interest rate rises, this looks expensive," said broker Schroder Salomon Smith Barney.

But Schroder Salomon did admit that the company had "engineered an impressive recovery" with a good chance of doing even better on sales and margins this year.

Soaring sales

The strong results from M&S came as little surprise.

The company released sales figures for the first three months of 2002 - the final quarter of its financial year - in April, showing that sales rose 10.9% over the previous year, or 10.6% stripping out new store openings.

Within that the new clothing ranges - "Per Una" for women, designed by Next founder George Davies, and "Blue Harbour" for men - performed particularly well, M&S said, with clothing sales overall up 16.6% on a like-for-like basis.

The financial services business was less successful, but Mr Vandevelde said there was no way it would be spun off.

"We believe it is underdeveloped at the moment," he told the BBC, adding that a new combined loyalty and credit card would be introduced.

He also said the company - which has sold off its European business, among other restructuring initiatives - would not look to buy any other company.

Instead the firm will concentrate on organic growth, including the launch of up to 20 more specialist food shops.

Also on the agenda are two large "Home Stores", returning to the home furnishings business which the company has experimented with in the past.

Pension concerns

M&S shareholders will get a final dividend of 5.8 pence a share, taking the dividend for the whole year to 9.5p, up from 9p last year.

But there were worries for staff holding a M&S pension.

The firm admitted that, under new accounting rules that will become part of its balance sheet from next year, it has a 400m pensions deficit

That could eventually dent M&S's cash reserves, although no immediate action is needed.

The BBC's Andrew Verity says that while a company the size of M&S should be able to deal with the problem, it underlines the hole that is emerging in the finances of many firms.

M&S was once seen as having one of the most generous final salary pension schemes.

The firm closed this scheme to new members in April, joining a number of other blue-chip British firms including BA, BT, Ernst & Young and Lloyds TSB which have all recently changed the pensions they offer staff.

The BBC's Rory Cellan-Jones
"The clothes are beginning to give customers a reason to return"
M&S chairman Luc Vandevelde
"The recovery is definitely well under way"

Seeking the spark

See also:

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