Chasing sales rather than margins pays off at M&S

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MARKS & SPENCER'S decision to pursue faster sales growth at the expense of gross margin has worked well in the first two months, according to the deputy chairman, Clinton Silver.

He said the value-for-money campaign, which began this autumn, had a positive impact on sales and augured well for Christmas. 'If we go on as we have in the last eight weeks, I'll be happy,' he said.

M&S is selling many of its autumn clothing ranges at the same prices as 12 months ago or lower. It is also trying to price its food, which is widely regarded as expensive, more competitively.

In the 26 weeks to 26 September, M&S lifted pre-tax profits and exceptional items by 11 per cent to pounds 257.1m. Group sales shrank by 0.3 per cent to pounds 2.64bn.

The profits were in line with forecasts, but the City took a gloomy view, marking the shares lower and cutting profit forecasts for the full year and in some cases for next year.

In the UK and the Republic of Ireland sales of food grew by 0.4 per cent and clothing and homeware by 1 per cent. Like-for- like sales volumes in each category therefore fell, analysts said.

Sales of women's outerwear, men's jackets and suits and recipe meals grew strongly. In the second quarter, home furnishings also did well. However, underwear, shirts, pullovers and packaged groceries performed poorly.

Operating profits from retailing worldwide rose from pounds 227m to pounds 240.7m. The financial services division rose from pounds 9.5m to pounds 12.6m. Continental Europe's contribution increased from pounds 5.7m to pounds 6.6m. In America, Brooks Brothers and Kings Supermarkets lifted their contribution from pounds 3.1m to pounds 3.3m.

One surprise was the substantial increase in interest receivable from pounds 1.4m to pounds 10.1m, boosted by higher cash balances and tighter stock control. Gearing has fallen from 14.5 per cent to 9.8 per cent.

Pre-exceptional earnings per share grew from 5.5p to 6.2p. The dividend was lifted from 2.1p to 2.2p, to be paid on 15 January.

Mr Silver took a sanguine view of prospects for Christmas. Real pay was rising for those in work. Interest rates were falling and exports would benefit from devaluation. 'There may therefore be a little bit more consumer confidence going into Christmas', he said.

M&S's product line was also well suited to a recessionary Christmas: 'At times like this people will buy things like shirts and pullovers rather than inessential fripperies,' he said.

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