M&S: the hard work starts now

published 22 May 2008

Football managers are only as good as their next match, said David Prosser in The Independent. That's "a lesson that Sir Stuart Rose, chief executive of Marks & Spencer, is also about to learn". Marks & Spencer may have broken though the £1bn pre-tax profit barrier for the first time in a decade, but the market remained unimpressed by the retailer's recovery. Shares closed down almost 5% on the news, below the400p bid from Sir Philip Green three years ago.

Why the scepticism?

Analysts fear that pre-tax profits could fall by £200m this year, said David Wighton in The Times, "as it battles cost inflation of 7% and the toughest trading conditions since the early 1990s". Like-for-like UK retail sales, which account for 90% of total revenue, fell 2% year-on-year in the second half of last year, added Lex in the FT. Moreover, capital expenditure will remain high: the "Rose revolution demands more new stores and more refurbishment of old ones", said Nils Pratley in The Guardian.

What next?

Still, it's not all gloom. As Prosser noted, Marks & Spencer has less debt than its peers, and there is scope for bolstering market share in food, where it is starting to sell branded products. That should help make Marks & Spencer "a more natural place for shoppers' regular grocery trips", a sector that should be shielded from the slowdown.

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And it's not just the economy Rose is dealing with, said Wighton. There's also "lingering shareholder anger" over his appointment as executive chairman, which flouts corporate governance rules, and he needs to help find a successor. Rose has done well, but "the hard work starts now".

MKS: 396p; 12m change 46%

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