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Last Updated: Tuesday, 22 May 2007, 16:47 GMT 17:47 UK
M&S in recovery as profits soar
Tony Blair, David Miliband and Stuart Rose
Positioning M&S as an ethical brand is Mr Rose's next mission
Marks & Spencer has continued its recovery from a failing brand to a powerhouse of fashion.

Britain's iconic retailer has posted a 28.5% increase in annual pre-tax profit to 965.2m - not far off the record 1bn it saw in 1998 before its decline.

But comments that the retail market was becoming "more challenging" as interest rate rises bite prompted fears that future growth of the brand will slow.

M&S shares ended a year-long rise in London closing 5% lower at 703.5 pence.

"It's a good set of numbers, but we believe that M&S will have to run hard to show strong growth in future years," said Philip Dorgan, an analyst at Panmure Gordon & Co.

'Innovation and newness'

The improved performance was driven by stronger demand for M&S food and clothing, which was supported by an advertising campaign featuring 1960s model Twiggy, singers Myleene Klaas and Bryan Ferry and other celebrities.

Announcing the results, M&S said it will reward its staff for helping revive the brand with a bonus of 91m, including 26m for customer assistants.

Speaking to BBC Breakfast this morning, M&S chief executive Stuart Rose said that while stage one of the recovery process was complete there was still more work to do be done.

"The next step is broadening the business, creating new and exciting products for customers, and new and exciting experiences for customers," he said.

"We continue to improve our product ranges, offering customers better quality, value, innovation and newness," Mr Rose added.

The 1960s model Twiggy

The former Arcadia boss is widely credited for turning around the company's fortunes when he took over in 2004, saving M&S from a takeover by millionaire entrepreneur and Arcadia owner Sir Philip Green.

M&S reported a 6.1% increase in underlying UK sales, with new stores stripped out, and in 240 stores overseas, sales were up 16.8%.

As a result, the company increased its UK market share in both food and clothing.

It now has 11.1% of the UK clothing market, an increase of 0.7%, while its food market share rose 0.2% to 4.3%.

M&S hopes its planned expansion and an extensive refurbishment programme - 70% of stores are expected to be remodelled by Christmas - will boost sales further.

M&S profit peak?

M&S plans to create 10,000 new jobs in the UK over the next three years.

Future growth is expected to be helped by business expansion in overseas markets and online, underscored by the appointment of co-founder of Lastminute.com Martha Lane Fox as a non-executive director starting 1 June.

The company is well positioned with clothing and food to ride a likely retail downturn better than most
Richard Ratner, Seymour Pierce

The group said sales from its website, which was relaunched in March and now carries the full Per Una range, grew by 60% over the year to make it one of the most visited in the UK,

Mr Rose also gave an update on its five-year plan to make the company carbon neutral.

He said that two ecologically friendly factories were being developed, one in Sri Lanka to manufacture lingerie and another in North Wales to make upholstery for furniture.

Some analysts believe the group will weather a deteriorating consumer outlook to deliver more profit growth.

"Although life will get tougher with strong comparatives for the first three quarters, the company is well positioned with clothing and food to ride a likely retail downturn better than most," said Richard Ratner of Seymour Pierce.

Stuart Rose on Marks & Spencer's recovery

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