Marks and Spencer profits rise belies collapse in fashion sales

Chief executive, Marc Bolland, blamed the poor summer weather for the fall

Mr Bolland declined to say how badly womenswear had been affected, (Patch Dolan)

Marks & Spencer may have won over the City, but it is failing to win over customers as non-food sales collapsed by 6 per cent in its stores, leaving some analysts questioning whether the momentum in profit growth can be maintained.

A series of measures, including tightening supply chains and halting endless discounting, helped drive total profits up 6.1 per cent to £284m, on sales up 1 per cent at £5bn. But non-food, or general merchandise, sales fell 1.2 per cent in the six months to 26 September.

The chief executive, Marc Bolland, blamed the poor summer weather for the fall – which was harder in the final three months of the period – meaning the five-year drought of rising sales in non-food, including the struggling womenswear division, continues.

But investors were still impressed, with the shares closing up 14.5p,or nearly 3 per cent, at 535p. The rise was also helped by a dividend boost and the promise of two and a half more years of improved profits over sales.

However, the shares are still down 10 per cent from recent highs when investors believed M&S had turned the corner in general merchandise.

Online sales were strong, up 34.2 per cent, but these were flattered by weak comparatives due to a disastrous website relaunch last year.

Mr Bolland declined to say how badly womenswear had been affected, saying only that they were “in line” with the overall fall in general merchandise.

But, despite the drop, analysts and investors cheered rising profit margins, which grew 285 basis points thanks to the work of the secretive Lindsey brothers, Mark and Neal, who were brought in last year to improve sourcing. It means full-year profit margins will be up by between 200 and 250 points.

Industry sources have suggested the brothers are being paid several million pounds for their services – more than its highest paid board members – but Mr Bolland again declined to comment.

He did insist that the increasing profits would not be at the cost of quality and said there would be more rises to come. “We said we would improve our direct sourcing and direct design,” he said. “It will continue to the end of this year and next year. We have improved quality and kept price very competitive.”

Some analysts questioned how far the cuts could continue. Freddie George, a retail analyst at Cantor Fitzgerald, warned: “There are likely to be question marks over the quality of the product medium term, following unprecedented increases in [general merchandise] gross margins.”

But generally the City was positive, pointing out that Mr Bolland had restructured the business to keep investors happy with the rising profits.

Darren Shirley, a retail analyst at Shore Capital, said: “We do applaud management for its disciplined approach to running its business in a shareholder-responsible way.”

Others were more critical, including Jonathan Pritchard at Peel Hunt, who wrote: “We believe that running the [general merchandise] side of the business for profit is fine if you’re WH Smith, but not if you’re M&S. The way out of this spiral of negative like for likes is a root-and-branch change of psyche on product and its merchandising, but we fear that this is as far away as ever.”

Food sales were up 0.2 per cent on a like-for-like basis, while an expansion of food-only stores helped total sales in the division rise 3.3 per cent.