Marks and Spencer Group posted a big jump in annual pretax profits yesterday two years into its three-year recovery plan, but the resurgent shares slipped after the UK firm did no more than meet expectations.
"The group has had a good year," said chief executive officer Stuart Rose, who has been careful to manage expectations and avoid using the word "recovery".
"M&S is beginning to regain its confidence but we still have much to do to ensure that we sustain growth in the long term."
The 122-year-old food, fashion and home accessories chain said pretax profit excluding exceptional items was £751.4 million, up from £556.1 million, and in line with detailed guidance from the company after blistering fourth-quarter sales reported in April.
A 15.7 per cent rise in the dividend to 14 pence for the year beat all expectations.
But the stock, which has risen 68 per cent in the last 12 months to outperform the FTSE 100 by 52 per cent, was the biggest loser in the FTSE 100, down 3.8 per cent to 545-1/2p in morning trade, continuing a two-week retracing. Mr Rose put the share price fall down to profit-taking.
"You can't really criticise these results," said Tony Shiret, analyst at Credit Suisse.
"But I think the fact that Rose likes to play his cards close to his chest is probably hurting the stock today because the market was expecting more news."
Mr Rose, who joined in 2004 to defeat a £9.1 billion bid by Philip Green, has been rebuilding profit margins at the retailer with improved buying terms and reduced markdowns.
His priority for 2006/7 is a £520 to £570 million plan to refurbish 35 per cent of the group's selling space. A main piece of news on Tuesday was that the new format being trialled in 23 stores generated sales growth averaging 10 per cent in the fourth quarter.
Mr Rose said this was entirely in line with his expectations, but a few analysts had anticipated up to 15 per cent growth.
There was also a lack of detail on future growth plans for the brand, although Mr Rose said on a conference call with reporters he might broaden the product range, which now includes hot food to go, phones, and electronics as well as the traditional clothes and food. The focus of overseas growth remains franchise outlets, though M&S has not ruled out a return to wholly owned stores. Back in the UK, customer visits are up 350,000 to 15 million a week, M&S said. They are being tempted back into the stores with the help of an award-winning television advertising campaign featuring 1960s fashion icon Twiggy. Keener prices are also providing a boost, with 30 per cent of sales now coming from lowest price ranges compared with 12 per cent in 2003/4. That is putting the squeeze on rivals such as Matalan as well as hurting mid-price competitors like Green's Bhs. M&S's stock price, valuing the group at £9.5 billion, is trading on a multiple of 15.7 times forecast earnings for the year to March 2007. That compares with an average of 15 for the sector and 12.9 for rival Next.