British retailer Marks & Spencer raised full-year profit hopes when posting an improved quarterly sales trend, but said costs were rising and it would be 2011 before the economy fully recovered. Executive chairman Stuart Rose said there was more visibility in the marketplace and British consumers had regained some confidence but he cautioned: "It's fragile confidence.
"It's going to be tough going for the next 12, 18 months ... It's going to be 2011 before UK Plc is motoring again," he told reporters on Wednesday. "If you look at the metrics which are coming through, they're not attractive. Unemployment will go up, taxes are going up, so there will be pressure on pockets in the early part of next year," said Rose, echoing comments from rivals Next and John Lewis.
However, he said he was "quietly confident" M&S would continue to make progress in its key third-quarter period, with plans to recruit 20,000 workers for Christmas. Rose said he did not expect the government to delay a rise in value added tax (VAT) set for January 1 despite intensive lobbying. "Clearly they're fairly deaf down at the Treasury, they don't want to here our pleas," he said.
M&S's update was published after a survey from GfK/NOP said British consumer confidence surged in September to its highest level since January 2008. M&S, which sells clothes, homewares and food from over 600 stores in Britain and 285 abroad, said sales at British shops open at least a year fell 0.5 percent in its second quarter to September 26.
That was the eighth quarterly fall in a row, but also the best performance for two years and at the top end of forecasts for a fall of between 0.5 percent and 2.2 percent. Like-for-like sales fell 0.8 percent in general merchandise, which includes clothing, and were flat in food. Britain's biggest clothing retailer said its full-year gross margin should fall by 50-100 basis points, better than previous guidance for a fall of 125-175 basis points thanks to better stock control, sourcing and supply chain management.
But it said full-year operating costs would rise by 0-1 percent, excluding staff bonuses, due to better than planned volumes. Previous guidance was for a fall of about 1 percent. M&S has been hit hard in the recession, losing ground to cheaper rivals like Primark in clothes and supermarkets in food. Still, its performance has been better than analysts had feared, helped by new products, price cuts and promotions, and its shares have outperformed the DJ Stoxx European retail index by 46 percent this year on hopes of a recovery.
M&S shares were down 1.9 percent at 367.6 pence at 1115 GMT, valuing the company at 5.7 billion pounds. "Having enjoyed a run into these figures, the shares are trading on a premium valuation, so that we believe upgrades are already 'in the price'," said Investec analyst Katharine Wynne.
Separately on Wednesday, online fashion retailer ASOS posted a 47 percent rise in first-half sales, while outdoor goods group Blacks Leisure said it was closing stores and cutting jobs. Prior to M&S's update, analysts on average expected it to make a full-year profit of 540 million pounds, according to Reuters Estimates, down from 604 million in 2008-09.
Nomura analysts raised their forecast to 582 million. In July, Rose saw off a second investor rebellion in as many years over his elevation from chief executive in contravention of corporate governance guidelines. The board's position is it will appoint a new CEO next year and Rose will step down as chairman by July 2011.
"My intention is for me to stay on long enough to make sure that person (new CEO), either internal or external, gets saddled up successfully," he said, confident M&S would not face the same problem as ITV in finding a new CEO. M&S will hold an investor day on October 13 when internal candidates for the top job - finance chief Ian Dyson, clothing boss Kate Bostock, and head of food John Dixon - will present. "It will be a bit like (a) 'Britain's got talent' or 'M&S has got talent competition'," said Rose.
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