M&S celebrates best profits in nine years

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Marks & Spencer banked its biggest profits haul for nine years today after a high profile advertising campaign dragged millions of customers back into its stores.

The high street giant delivered a 32.2 per cent rise in pre-tax profits to £405.1 million for the six months to September 30 as sales of food and clothing soared.

The sparkling performance came after M&S encouraged an additional 19 million visits to its stores with a new look, better products, and the highly successful "Your M&S" advertising campaign.

And with same-store sales growth currently running at 7.3 per cent, some analysts are forecasting M&S to post full-year profits of £1 billion for only the third time, following on from 1997 and 1998. In 2001, M&S made just £145.5 million.

M&S shares surged to an all-time high of 700p today - more than double their level in September 2005 and well above the 400p a share Sir Philip Green offered in a failed takeover in 2004.

David Buik, of Cantor Index, hailed Mr Rose as "the undisputed king of gowns and blouses" today.

"Could M&S make £1 billion profits in a year?" he said. "It can't be ruled out."

But despite the improved results, M&S chief executive Stuart Rose refused to talk of a recovery.

"In retail, you never get to where you want to go, the journey never ends," said Mr Rose. "In terms of the short-term, ask me after Christmas. If we have a good Christmas then we can say we are in the next stage of the journey."

Much of the recent success has been put down to the award winning adverts, which feature 1960s fashion icon Twiggy and friends for womenswear and the voice over "this is not just food, this is M&S food" for food.

They have cost M&S an estimated £62 million in the last year but Mr Rose today said the investment was paying off with items such as a £35 jersey-dress worn by Lizzie Jagger in the adverts proving hugely popular.

"It flew out the stores," said Mr Rose. "In fact, it flew out so quickly we didn't even see it."

He said that while the advertising campaign may have attracted more customers into its stores, "the more important news is that it is converting into more sales" as clothing ranges, particularly womenswear, proved popular.

Same-store sales were up 7.3 per cent in the first half - with general merchandise up 9.2 per cent and food up 5.3 per cent - and have maintained that level in the last five weeks.

"If we continue at that level I shall be pretty pleased," said Mr Rose. "We believe we are well positioned for the all-important Christmas period."

He added: "We had a good first half. We have delivered better product, better service and better store environment. We gained in market share in all areas in which we trade."

M&S now holds 10.1 per cent of the clothing market, reinforcing its position as the largest clothing retailer in the UK.

And Mr Rose said he wanted to increase market share in food from the current level of 4 per cent to 5 per cent in the next five years.

"We are going to be quite aggressive about this," he said.

The first-half profits figure was the highest since the £452 million the company banked in 1997. It came as total sales lifted 11 per cent to £3.93 billion, although Mr Rose said there was still much to do.

He said the store refurbishment programme was only a third of the way through and a further £800 million will be ploughed into modernising the estate this year.

M&S also announced the first significant shake-up of its store portfolio for almost a decade, with the company aiming to increase selling space by 15 per cent to 20 per cent in the next five years through new out-of-town stores, increased presence in retail parks, and improvements to its city centre operations. The Simply Food offer at BP petrol stations will be rolled out to 200 forecourts.

M&S, which currently has 507 stores in the UK, said the new space will help it "stretch the brand" as it moves into new products and services.

The chain now sells electrical goods such as televisions, DVD players, hi-fis and laptops at 13 of its stores. It is also trying out hot food counters and a restaurant recently opened in Newcastle.

Retail analyst Nick Bubb, of Evolution Securities, said the results for the first half were "bang in line with expectations" and added that "the recovery looks assured".

He upgraded his full-year profits forecast from £915 million to £985 million.

"The £1 billion being talked about by some people is not impossible," he added.

Mr Rose, who was parachuted into the hot seat in 2004 to fend off Sir Philip's £9 billion bid, announced a 31 per cent rise in the interim dividend to 6.3 per cent a share.

Richard Hunter, head of UK equities at Hargreaves Lansdown stockbrokers, said: "There are a slew of positives coming out of today's very robust numbers - continuing strength in clothes and food, the refurbishment programme advancing, the ongoing success of the TV advertising campaign and even the roll-out of its Simply Food brand across BP forecourts."

He added: "There is the key Christmas trading period to come which should finally underline that the recovery is complete."