M&S Profits Plunge

Marks and Spencer, the British food and clothes retailer, has today posted a first half profit of £297.8 million, some 34% down.

Whilst significantly down, the performance was slightly better than the market expected. This coupled with debt levels, albeit hight, not increasing has led to a rise in the M&S share price, up over 7% at the time of writing.

Sir Stuart Rose, M&S executive chairman stated that ‘the UK economy is having a very difficult time and we can’t defy gravity.’ He however went on to say that M&S has a good business plan and ‘is a very strong business in a very weak economy’.

M&S confirmed it will pay an interim dividend of 8.3p. This might please the shareholders but it has raised some questions amongst the analysts. There is some suggestion that this level of dividend cannot be maintained and that it will be cut at the final stage.

With the downturn in the economy Marks and Spencer is coming under pressure on both the food and clothing fronts. Shoppers are more aware of how they spend their money and in many cases are turning to cheaper stores for their food. Whilst M&S has responded by cutting the price of over 500 food products it will be interesting to see consumer reaction, particularly over the forthcoming Christmas period.

M&S has various brands within their clothing range, including for example Per Una and Autograph. At the recent opening of the M&S Westfield London store, Kate Bostock, head of clothing, announced the store will be launching a new brand, Portfolio, in February 2009. Portfolio is targetted at women over the age of 45 looking for fashionable clothing, filling the gap between the current Per Una and Classics ranges.

If the new range delivers to expectation, then it seems that M&S really have listened to customer feedback and in my view supports the message from Sir Stuart Rose that M&S does have a strong business plan. Let’s hope there’s more to come.

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