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Brighter outlook for M&S after profit rise

British retailer Marks & Spencer raised hopes that it has finally rediscovered a winning formula as it reported a rise in annual profit for the first time in four years and its intention to return excess cash to shareholders.

After a poor Christmas, the results also ease the pressure on Marc Bolland, chief executive since 2010. Some observers have suggested that recent improvement in the M&S share price offer an opportunity for him to leave on a relative high, but Bolland said he had no plans to depart any time soon, telling reporters he “absolutely” expected to present results this time next year.

Britain’s biggest clothing retailer, which also sells homeware and upmarket food, posted a profit before tax and one-off items of £661.2 million in the year to March 28, up six per cent year on year and above a consensus analysts’ forecast of £648 million.

For the second year running, however, the outcome was less than the annual profit at clothing rival Next and well short of the £1 billion made by M&S in its 2007/2008 financial year.

Bolland has focused on boosting profit margins and delivered a rise in the 2014/2015 gross margin for general merchandise – spanning clothing, footwear and homeware – of 1.9 percentage points.

The company is targeting further growth of 1.5 to 2 percentage points this financial year, which would be a reward for having sourced more goods directly from suppliers, spent less on promotions and concentrated more on full-price sales.

However, some analysts still see major challenges ahead.

“The elephant in the room ontinues to be M&S’s ability, or lack thereof, to recruit and retain younger shoppers,” said Bryan Roberts, of Kantar Retail.

M&S cautioned that its international business will be hit in the short term by the weaker euro and tough macroeconomic backdrop, particularly in its Middle East region, but flagged long-term growth opportunities across several markets, including France and India.

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