M&S expected to post an upturn for fourth quarter

Comments by Sir Stuart Rose on outlook for sector will be closely watched
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The Independent Online

Sir Stuart Rose, the chairman of Marks & Spencer, is expected to reveal on Thursday a further recovery in its performance with a rise in underlying fourth-quarter sales, as he prepares to hand over the reins to the incoming chief executive Marc Bolland.

The sector will also scrutinise any comments made by Sir Stuart about trading conditions on the high street amid mounting evidence of a tightening in expenditure ahead of the general election. The patchy weather and fierce discounting during Easter will not have helped and store groups fear that measures taken by the next Government to plug the public-sector deficit may lead to a relapse in consumer confidence in the second half of the year.

M&S is likely to deliver underlying UK sales, including online, up by 1.7 per cent for the 13 weeks to 27 March, according to consensus forecasts. This would be the fifth consecutive quarter of improved sales and a step up from the 0.8 per cent growth posted during the Christmas trading period. But the range of analysts' forecasts spans a fall 0.5 per cent to a rise of 3.7 per cent in the retailer's UK like-for-like sales in the fourth quarter.

Expectations of a pick-up in trade has led the City to pencil in consensus pre-tax profits of £637m at M&S for the 12 months just ended, up from £604m a year ago but down on the £1.1bn posted in May 2008. This year, the retailer's 70,000 staff are expected to share an estimated £80m bonus pot, giving employees an average payment of £500.

The City expects M&S's general merchandise division, which is largely clothing, to again have outperformed its food business, which accounts for just more than half of total sales. Underlying general merchandise sales are forecast to have risen by 2.5 per cent, although they could be as high as 5.7 per cent, boosted by demand for winter coats, footwear and thermals during the cold snap.

Its food arm is predicted to have grown by 1 per cent in Q4, year-on-year, but the sales range varies between flat and 2.5 per cent growth. M&S's food business has struggled for much of the recession and has had to battle a resurgent Waitrose, which is the UK's fastest-growing supermarket, during the past 12 months. But M&S's underlying food sales returned to positive territory in its third quarter and, according to industry data, have continued to improve this year.

Thursday's results will be the last overseen by Sir Stuart, who became chief executive of M&S in 2004, ahead of Mr Bolland joining on 1 May.

This month, M&S said that Sir Stuart will leave by March next year and will take a pay cut of a quarter when he becomes non-executive chairman at the end of July. His salary will be reduced from £1.16m to £875,000 from 31 July, although he will still be the best-paid chairman in the FTSE 100.

Mr Bolland, who could earn up to £14.8m in his first year at M&S, boosted by compensation for rewards accrued at Morrisons, is not expected to make any pronouncements about its strategy until later this year. Last week, Kate Calvert, an analyst at Shore Capital, said: "Expectations are low going into this update. Marc Bolland is unlikely to update on his strategic direction until the autumn at the earliest and so we are in a strategic vacuum."

M&S is poised to unveil an update on its triennial pension valuation, with a deficit of between £1bn and £1.6bn expected. Speculation is also mounting that M&S may launch an equity fund raising up to £800m later this year to give it greater financial flexibility to develop the business through, for example, international expansion.

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