RETAIL giant Marks & Spencer announced its first rise in profits in four years, raising hopes that the retail sector is back on track following one of the toughest periods in living memory.
Britain’s biggest clothing retailer reported a six per cent jump in annual pre-tax profits to £661.2m in the year to March 28, comfortably beating expectations.
M&S’s food sales have outstripped its more downmarket rivals over the past few years, but it has struggled with its general merchandise division, which includes clothing.
The division suffered 14 quarters in a row of like-for-like declines, but this changed in the first three months of 2015 when underlying sales rose 0.7 per cent.
Following the upturn, M&S said it is now looking ahead to a period of “modest sales growth”.
Items such as a much-talked about 1970s-style suede skirt worn by TV presenter and model Alexa Chung have helped improve the image of Marks’s clothing range.
M&S chief executive Marc Bolland said the group is working on its supply chain to ensure that popular pieces don’t sell out whilst at the same time keeping some exclusivity.
“It’s striking the right balance,” he said.
“It’s a mix between availability and keeping it exclusive. You don’t want to be seen in something everyone is wearing the next day.”
M&S blamed its disappointing clothing sales performance last year on the autumn weather - the third warmest on record - hitting sales of coats and knitwear.
In a bid to improve its fashion status, new products will appear every two to three weeks rather than every two to three months.
Underlying sales in the M&S food business have outperformed the wider market with 22 consecutive quarterly rises.
The group said its food division had an “outstanding” year, posting 0.6 per cent like-for-like sales growth despite the pressures facing the sector from discounters Aldi and Lidl.
The big four grocers, Tesco, Asda, Sainsbury’s and Morrisons, have all suffered declines in underlying sales.
Mr Bolland said that M&S is different from its rivals in that it doesn’t try to be a weekly shopping destination. Instead a large proportion of shoppers come into the store having no idea what they will buy but knowing they want something nice for supper.
“Retail has not been easy for the last five years. Four retailers have seemingly flagged. We believe we are well prepared,” he said.
After a poor Christmas, the results will ease the pressure on the former Morrisons boss, who has been chief executive since 2010.
Some analysts have said the recent improvement in the share price offers an opportunity for him to leave on a high, but Mr Bolland told reporters he “absolutely” expects to present results this time next year.
Shares in M&S have risen by more than a third over the past nine months and hit an eight-year high on Tuesday.
M&S raised its dividend 5.9 per cent to 18p and announced the start of a programme of enhanced shareholder returns with a £150m share buyback.
However the results were below the annual profit at clothing rival Next and well short of the £1bn announced by M&S seven years ago.
Shore Capital analyst Clive Black said: “With general merchandise now positive and, we believe, set to remain so for much, if not all, of 2015-16, more exciting times could be ahead for shareholders.”
He said the prospect of pre-tax profits topping £1bn again would not arrive “any time soon”.
“However, it is not beyond reason to assert that with sustained revenue growth in general merchandise, with progress in food and some tailwind in international markets, that M&S could make considerable strides to this figure and quickly,” Mr Black added.
However other analysts said M&S still needs to attract younger shoppers.
“The elephant in the room continues to be M&S’s ability, or lack thereof, to recruit and retain younger shoppers,” said Bryan Roberts, of Kantar Retail.