Pressure mounts on M&S chief as profits set to drop

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MARKS & Spencer is expected to report lower first-half sales and profits next week, ratcheting up the pressure on its chief executive at a time when the retailer’s shares are on the rise thanks to bid speculation.

Although analysts expect second-quarter sales at Britain’s biggest clothing retailer to show an improvement on the first quarter, they also anticipate the 128-year-old firm will post an 11 per cent fall in first-half profit.

Marc Bolland, the former Morrisons chief executive, has had a tough 2012. In May, he slashed M&S’s three-year sales growth target, blaming the recession, and in July he shook up his general merchandise management team after the group reported its biggest quarterly sales drop for three and a half years, blaming wet summer weather and stock management issues that left stores short of bestselling womenswear lines.

Shares in the company have risen 18 per cent over the last three months, buoyed by persistent speculation regarding a possible offer from private equity or a sovereign wealth fund.

Some analysts have been critical of the investment required to deliver Mr Bolland’s strategy of embracing multi-channel retailing – connecting with customers via many different types of channels including online – particularly in non-food, and selective overseas expansion.

At home, M&S sells clothes, footwear, homeware and foods from 730 stores to 21 million Britons a week, and has 390 stores in 44 countries.

“The promotional strategy in general merchandise is brand-damaging, in our view,” said Investec Securities analyst Bethany Hocking, referring in particular to what she sees as excessive promotions in clothing.

“We don’t see acceptable returns on £2.4bn of capital expenditure 2013-15 and we expect bid speculation, which has driven the shares higher, to die down.”

Analysts expect M&S to post on Tuesday a pre-tax profit before one-off items of £250m-£305m for the six months to September 29, with a consensus of £280m, according to a company poll of 10 analysts, down from £315m in the same period last year.

General merchandise sales from its British stores open over a year are tipped to have fallen 2.5 per cent in the second quarter, having slumped 6.8 per cent in the first quarter. Food sales are seen 1.5 per cent higher, accelerating from growth of 0.6 per cent in the previous quarter.

Key will be M&S’s outlook for Christmas, the busiest trading period of the year. The firm will be looking for an improvement on Christmas 2011 when unusually mild weather hit clothing sales.

Retailers are generally finding the going tough as consumers hold back spending in the face of inflation, meagre wage increases and government austerity measures.

However, retail sales picked up more than forecast in October, a survey showed on Tuesday.