Vandevelde's caution on growth sends M&S lower despite 34% rise in profits

Marks & Spencer reported better-than-expected half-year profits yesterday but the shares fell sharply on fears of a consumer slowdown and disappointment that the high street giant had missed key efficiency targets.

Announcing a 34 cent rise in pre-tax profits to £285.3m for the six months to 28 September, the chairman Luc Vandevelde said M&S had now delivered four consecutive quarters of growth and had "moved from securing the recovery to sustaining the recovery".

M&S said it is regaining market share in key areas such as womenswear and lingerie. The group is also planning to expand its chain of 20 Simply Food convenience stores and is considering opening branches in airports and petrol stations after a recent deal to open 40 more outlets at railway stations.

But Mr Vandevelde added a note of caution over future trading, saying M&S now faces tougher sales comparisons with last year as well as a potentially slowing high street. "We should expect the market to go back to more normal growth levels," he said, indicating a range of 3 to 5 per cent growth.

M&S shares fell 7 per cent to 352p on the weaker outlook statement and news that it had missed its efficiency targets in womenswear and childrenswear. M&S admitted it bought some women's ranges too aggressively and had been forced to mark down unsold goods. In childrenswear the group has taken a £5m provision to cover unsold stock after its older children's ranges failed to sell well. But Roger Holmes, recently promoted to chief executive, said the new David Beckham boyswear range was performing strongly.

Mr Holmes said M&S was staging a high street fightback, having lost £800m of clothing sales between 1998 and 2001, the equivalent of 3 percentage points of market share. It has now grabbed back 1 percentage point, Mr Holmes said, with strong performances in bras and knitwear, helped by better ranges, more competitive prices and advertising.

In its foods division, where margins slipped 0.4 percentage points, M&S is "re-launching" improved versions of some ready meal ranges.

A question mark remains over the future of the Kings supermarkets business in the United States, where profits slumped 22 per cent to £4.6m. M&S has agreed to sell the business to the US group D'Agostino but the buyer is struggling to raise the finance.

In the UK a £5m Christmas advertising campaign starts on Friday with television commercials starring Denise van Outen, Ronnie Barker, Joan Collins and Cat Deeley.

Mr Vandevelde, who becomes part-time chairman in January, said he had not decided what other jobs he might take but that he would predominately be based in the UK.

Analysts were divided on the figures, which followed a second-quarter trading statement in October showing underling sales growth of 13.2 per cent in non-foods. Merrill Lynch pointed to rising costs as a percentage of sales and said "the risks are moving to the downside". But SG Securities was more upbeat. "We still think there is more to go for," Nick Bubb said.