M&S' Mr Turnaround defies his critics

Luc Vandevelde steers M&S into calmer waters

Just over two years ago, Luc Vandevelde accepted one of the toughest challenges of his career when he took over as chairman of the UK's best-known retailer Marks & Spencer.

The retail operation that Mr Vandevelde inherited on 28 February 2000, buffeted by two years of dwindling sales and failed revamps, bore little resemblance to the stock market and high street superstar of the mid-1990s.

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

Luc Vandevelde
Chairman

The company's core clothing sales were in steep decline as shoppers sought out trendier alternatives.

And investors, shocked by two profit warnings, had wiped a third off M&S' share price the previous year.

Belgian-born Mr Vandevelde, a lifelong retail executive who had previously steered French supermarket chain Promodes into a merger with its biggest domestic rival Carrefour, began his stint as M&S chairman with a flourish.

All or nothing

In May 2000, he effectively staked his reputation on successfully pulling M&S out of the mire, promising to resign if the company had not turned the corner within two years.

An expensive TV ad campaign backfired

Later he extended that deadline to May 2002, but Tuesday's results suggest that Mr Vandevelde's initial confidence was not misplaced.

M&S is well on its way to recovery - profits have risen 30% in the last year and its shares are up 90% in the same period.

"We have made good progress and believe that we have turned the corner," said Mr Vandevelde.

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.

This is the first time since 1999 that the company has announced an increase in profits for the year as a whole.

Critical

Not that it has been plain sailing all the way. In April last year Mr Vandevelde waived his rights to an £816,000 bonus, facing criticism after yet another batch of disappointing sales figures.

Now our task is to secure the recovery and build for our future

Luc Vandevelde
Chairman

The following month, shareholders hoping for a quick fix were disappointed when profits crashed lower for the second year in a row despite new product launches and an expensive television advertising campaign.

And Mr Vandevelde's controversial decision to pull out of continental Europe, closing 39 stores and axing about 5,000 jobs, triggered a damaging labour dispute with trade unions in France.

Future threat

Moreover, there are some new clouds on the horizon.

The retailer faces a serious new threat in its core UK market from newcomer Zara, a popular chain of Spanish-owned stores specialising in cut-price copies of catwalk fashions.

Zara is seen as a threat to M&S

In addition, M&S is looking for future growth by expanding its popular food chain, but analysts fear this tactic could put it in stiff competition with the established supermarkets.

In all the turnaround euphoria, M&S' shares are also beginning to look a little pricey, coming in at more than £4.

"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.

Growth in the UK clothing market, which has been impressive until now, is expected to slow to 5% by the end of the year.

"I recognise 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," Mr Vandevelde said following the company's annual results.

But for now, he can afford to relax a little, secure in the knowledge that he has probably done enough to meet his self-imposed deadline.