Courtaulds shares leap 20% on M&S outlook

Click to follow
The Independent Online
SHARES IN Courtaulds Textiles, the clothing and fabric maker, leapt more than 20 per cent yesterday after the group said it was among the chosen few suppliers who will benefit from increased orders from Marks & Spencer, the troubled retailer.

The shares rose 15p to 89.5p despite a warning from Courtaulds on its total sales for the year following price pressures and "tentative" demand in its global markets.

A spokesman for the textile company said that though no formal contract had been signed with M&S: "There are positive developments regarding our business with Marks & Spencer. It has taken a strategic decision to concentrate purchasing on a selected group of leading suppliers with international expertise.... We figure centrally in those plans."

M&S is aiming to cut its costs and source more of its clothing from overseas to halt a slide in profits, but has said it will continue to buy around 50 per cent of its garments in Britain, benefiting the suppliers it retains.

Courtaulds, which makes a range of clothing for M&S, including casual wear, formal wear and lingerie, expects its sales to its major customer to increase by about pounds 60m a year beginning next autumn. Shares in Dewhirst Group which, like Courtaulds, is expected to profit from the new M&S supply policy, rose 2.5p to 66.5p yesterday.

The groups' good fortune comes in contrast to suppliers such as William Baird, whose own contract with M&S was axed in October. Baird warned of a threat to thousands of jobs and major restructuring costs after it was told that a 30-year-old supply agreement with the retailer would end. Similar agreements with DAKS/Simpson and Richard Roberts were also cancelled.

Yesterday's leap in Courtauld's share price contrasts with a free-fall last week. Referring to M&S's 43 per cent fall in first-half profits this month, one analyst said: "People had seen Marks & Spencer's results and drawn their own conclusions." Courtaulds fell to a low of 74.5p on Monday, its market capitalisation having dwindled in recent years.

Despite yesterday's positive news on M&S, Courtaulds warned that full- year sales were likely to be flat, citing difficult conditions in the UK and low demand for both private label and branded lingerie and hosiery.

Courtaulds, which supplies several other high street retailers, such as Bhs and Tesco, relies on M&S for around 40 per cent of its sales. In September, the group reported first-half sales up 11 per cent at pounds 442m with pre-tax, pre-exceptional profits down from pounds 12.2m at pounds 9.3m.