Marks & Spencer's fourth-quarter trading update shone a ray of light on an otherwise gloomy retail sector. But even though the company is winning back customers and regaining market share, its outlook remains cautious, as Leonie Barrie reports.

Figures released yesterday (11 April) confirm that the recovery of Marks & Spencer is continuing apace, with fourth quarter sales rising well above forecasts and shoppers flocking back to its stores.

The UK's largest clothing retailer reported a third consecutive quarter of underlying sales growth led by its revitalised clothing and home products ranges, bucking the general decline being reported elsewhere on the high street.

Same-store sales in the 13 weeks to 1 April 2006 rose by 6.8%, with like-for-like sales of general merchandise - which includes fashion and homewares - posting a huge jump of 8.2%. UK sales grew by a total of 9.1%, with clothing sales in the retailer's home market up by 8.5%.

The figures are expected to take M&S's full-year profits for 2005/06 to between GBP745m and GBP755m - and the company intends to pay a GBP20m one-off bonus to shop-floor staff on top of the £50m incentives already agreed.

Strong performance
M&S's self-professed "strong performance" is undoubtedly due to a combination of better buying, better values and better styling across its ranges - a plan believed to be the brainchild of chief executive Stuart Rose, who joined the company in the summer of 2004 to help fend off a takeover bid by Bhs owner Philip Green.

Rose concedes that although "the product game" is "a constant battle," the company is at last making progress in its ladies' and men's wear.

Splitting the business between men's and women's wear has had a key part to play in delivering this improved performance. Ladies' wear, under the direction of Kate Bostock who moved to M&S from Asda's George clothing brand in May 2004, has seized an extra 1.6% market share, led by strong demand for its knitwear, formalwear and fast fashion lines.

Men's wear, on the other hand, has also done well in its formalwear and casualwear ranges, but "still needs warm sunny weather" if it is to realise its potential.
If there are any clouds on the clothing horizon then they are without doubt hovering over children's wear, which Stuart Rose points out is "a very tough, price-driven market." But shifting the opening price points here has led to new customers, and helped increase market share to 4.3% from 2.4% last year he says.

As Rose explains: "We benchmark ourselves against our key competitors in the markets in which we trade, such as Debenhams, Next and Bhs - and I'm very comfortable with our pricing."

Store refurbishment
M&S's ongoing store refurbishment programme - which it now plans to roll out across the whole chain - has also helped to boost its recovery. Around GBP520m to GBP570m has been set aside for store refurbishments and other projects in 2006-2007.

To date, 24 stores (around 5% of total selling space) have been refurbished, with an additional 50-60 stores due to be completed during this calendar year. Which means that by Christmas 2006, one-third of the company's retail portfolio will have been updated. In fact, Rose says this refurbishment programme will be "the primary driver for the next 12 months."

An acclaimed advertising campaign featuring models such as Twiggy and Erin O'Connor has also helped to entice around 18m more customers through M&S's doors than last year, and footfall into the stores has been outperforming the market in the last quarter by "high single digits."

But despite these strong figures, CEO Stuart Rose continues to downplay the extent of M&S's resurgence, saying that there "remains much to do."

Rather than talk of a recovery he points out that comparisons are being made with the year before, when sales were still fairly weak. Like-for-like figures showing growth on growth are what he wants to see.

"The trading environment remains difficult and we do not expect this to improve in the next financial year. Progress will become more demanding as we start to come up against growth year on year." He believes this Christmas will be "the defining quarter" for M&S.

But it's clear that M&S's growth in market share is coming at the expense of rival retailers who have all had to endure the tough economic climate, cold spring weather and the impact of a late Easter on sales. Figures from the British Retail Consortium - posted on the same day that M&S released its results - show the UK high street in general kicked off 2006 with its worst start for a decade.

Marks & Spencer will announce its full year figures for the year to 1 April 2006 on 23 May.