M&S profit rises for first time in four years

London - British retailer Marks & Spencer raised hopes that it has finally rediscovered a winning formula, reporting a rise in annual profit for the first time in four years and its intention to return excess cash to shareholders.

Britain's biggest clothing retailer, which also sells homeware and upmarket food, posted a profit before tax and one-off items of £661.2m in the year to March 28, up 6% year on year and above a consensus analysts' forecast of £648m.

M&S raised its dividend 5.9% to 18 pence and announced the start of a programme of enhanced shareholder returns with a £150m share buyback for 2015 and 2016.

"We are a more capable business following a sustained period of investment in our infrastructure and in our people," Chairman Robert Swannell said.

For the second year running, however, the outcome was less than the annual profit at clothing rival Next and well short of the £1bn made by M&S in its 2007 and 2008 financial year.

Shares in M&S, one of Britain's best-known shopping chains, have risen by a third over the past nine months, hitting an eight-year high on Tuesday. They were up 1.2% at 578 pence in early on Wednesday trading, against a 0.1% gain for the FTSE 100 index.

Those increases reflect hopes that the billions of pounds spent by CEO Marc Bolland on the redesign of products, stores, supply chain logistics and its website is paying off and addressing decades of underinvestment in the 131-year-old business.

'Buying for less, selling for more'

"The rise in profitability can be attributed to a combination of a reduction in capital expenditure, increased sourcing efficiencies and a shift away from perpetual discounts. Simply put, M&S is finally buying for less and selling for more," said Natalie Berg of researcher Planet Retail.

Since taking the helm in 2010, Bolland has focused on boosting profit margins. He delivered a rise in the 2014 and 2015 gross margin for general merchandise - spanning clothing, footwear and homeware - of 1.9 percentage points.

M&S is targeting further growth in the general merchandise gross margin of 1.5 to 2 percentage points in the current financial year.

Last month M&S said fourth-quarter sales of general merchandise rose 0.7% at stores open more than a year, representing the division's first positive performance in 15 quarters.

Underlying sales in the food business have outperformed the wider market with 22 consecutive quarterly rises.

The gross margin on food rose 0.3 percentage points in 2014 and 2015 and the company expects growth of up to 0.1 percentage point in 2015/16. It raised the target for new Simply Food stores from 200 to 250 in the three years to March 2017.

M&S cautioned that its international business will be hit in the short term by the weaker euro and tough macroeconomic backdrop, particularly in its Middle East region.