M&S profit close to £1 billion, to add 10,000 jobs

British food and clothes retailer Marks & Spencer yesterday posted an annual profit of almost £1 billion, its highest in nearly a decade, and underlined its recovery by saying it would create 10,000 jobs.

Marks & Spencer, with stores from London to Hong Kong, reported adjusted profits before tax jumping 28.5 per cent to £965.2 million in line with analysts' forecasts and just below a record £1 billion in 1998.

Chief executive officer Stuart Rose, who took charge three years ago and has led one of the most noted turnarounds in British retail, said sales from its 520 stores rose 10 per cent to £8.6 billion on gains in childrenswear and "celebration and indulgence" foods.

Mr Rose, who is due to step down in 2009, said he was also looking at expanding M&S into India and taking it back into France and the rest of "Old Europe", where it made an ignominious retreat in the 1990s as it lost UK market share.

The company, which employs about 50,000 people, also unveiled plans to create 10,000 jobs over three years.

But Mr Rose said the retail environment would become "more challenging" with rising inflation hitting household purses.

Concerns about how Britain's largest clothes retailer will find more growth sent its shares three per cent lower.

The company also faces renewed competition for the key under-40s shoppers from supermarket group Tesco and newer fashion chains New Look and Primark.

"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 Panmure Gordon & Co analyst Philip Dorgan who has a 'Sell' recommendation on the stock.

Mr Rose brushed off the share price fall, saying the stock had enjoyed a "good run" in the past three years and he believed his strategy of expansion internationally, online and into restaurants and electricals would drive growth.

M&S had a "satisfactory start" to the financial year beginning in April, he said. Seymour Pierce analyst Richard Ratner said the results were "decent" and M&S was "well positioned with clothing and food to ride a likely retail downturn better than most". "The next five years should see a significant contribution from new space, the scaling up of our Direct business and the strengthening of our international presence," Mr Rose said.

M&S's clothing market share rose last year to 11.1 per cent, up 70 basis points, with childrenswear making its first share improvement in six years. Its market share in food - where Mr Rose sees room to ramp up future growth - rose to 4.3 per cent.

UK gross margin improved by 60 basis points, less than a 100 basis points forecast by the company.

M&S was on track to expand its space by 15-20 per cent in the next five years with out-of-town supercentres and 100 more Simply Food stores planned for this year, Mr Rose said. That growth would create some 10,000 jobs in the next three years.

Its online retailer M&S Direct, which saw sales increase 60 per cent to £160 million last year, was aiming for half a billion pounds of sales within five years. UK like-for-like sales rose 6.1 per cent over the year, while sales in its 240 international stores rose 16.8 per cent. Its final dividend payment rose 30 per cent to 12 pence per share.