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M&S profits dented by higher costs

 

Graeme Evans
Tuesday 08 November 2011 16:01 GMT
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Marks & Spencer revealed a hit to profits today after it opted not to pass on the full extent of rising costs to cash-strapped shoppers.

The high street bellwether reported a surplus of £320.5 million for the six months to October 1, a drop of 8% on a year earlier and the company's first reduction in profits for two years.

Chief executive Marc Bolland said the company had taken "decisive action" by offering promotions and better value to shoppers at a time when households finances were being squeezed.

The strategy came despite the company facing higher commodity costs, particularly in clothing.

Mr Bolland added that he remained cautious about the outlook but said the chain was "well set up" for the Christmas period.

Shares in M&S opened 4% higher after the results met forecasts in the City and the company said the second half of its financial year was going as expected.

The chain, which operates from 700 stores, has been hit by the huge number of promotions on offer at both its supermarket and fashion rivals, which has seen its profit margins squeezed as it tries to compete.

It started its summer sale two weeks early this year, in line with the rest of the high street, as retailers slashed prices to tempt shoppers.

The hot weather in September and October also hampered an already depressed clothing market by causing shoppers to postpone buying autumn and winter ranges.

General merchandise sales, including clothing and homewares, were down 1.3% on a like-for-like basis in the half year, but M&S hailed its strong performance in food after the launch of 900 new lines and the roll-out of more promotional offers helped like-for-like sales in the division rise 2.1%.

M&S recently announced a £600 million revamp that it hopes will make its outlets easier to shop in and boost sales of its own brands.

The stores will include "shops within shops" for each of its brands, such as Per Una, Limited Collection and Autograph, with each benefiting from their own distinctive backdrops. It comes after shoppers complained the stores were difficult to shop in.

Mr Bolland is also planning to turn the store's labels into "proper brands".

M&S shares have fallen 18% over the last six months, against an 8% dip for the wider FTSE 100 Index.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: "With much of the retail pain already priced in, today's numbers have come as a welcome relief to M&S investors."

PA

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