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London - British retailer Marks & Spencer posted a rise in first-half profit for the first time in four years, as cost cutting and rising food sales offset a deepening slide in clothing revenues, hit recently by warm weather.
Shares in Britain's biggest clothing retailer, down 17% over the last year, jumped more than 8% in early Wednesday trading as the group raised its profit margin forecast for non-food products.
However, analysts said the jury was still out on whether chief executive Marc Bolland was delivering a long-anticipated turnaround, with clothing sales from stores open more than a year falling for the 13th quarter in a row.
"Beyond the flagship stores, many still feel like museums where older people go to browse black slacks," said Phil Dorrell, director of the retail consultancy Retail Remedy.
"But Marc Bolland may have done just enough to avoid the rocks - for now."
Bolland, poached from grocer Morrisons with great fanfare in 2010, has spent over $3.7bn to address decades of under-investment, overseeing the revamp of products, stores, a website, logistics and marketing.
He says the group is improving "step by step." But his new clothing team has so far failed to deliver a sustained increase in sales and, for the first time, Marks & Spencer (M&S) earned less in the year ended March than rival Next.
Sales of general merchandise products, spanning clothing, footwear and homewares, at stores open over a year fell 4.0% in the 13 weeks to September 27, its fiscal second quarter.
That compared with analysts' average forecast of down 3.7% and a first quarter drop of 1.5%.
M&S said "unseasonal conditions" in September knocked about 1.3% off its first-half non-food sales.
Last week the warm weather forced Next to cut its profit forecast, while fashion firm SuperGroup issued a profit warning. On Tuesday discount chain Primark said it was unconcerned by the weather, though even its sales growth has slowed.
Improving margins
However, M&S said its gross profit margin in general merchandise rose 150 basis points in the first half, benefiting from better prices from suppliers and fewer discounts in the shops. The company also said it was reining in costs.
As a result, first-half pretax profit before one-off items was £268m, ahead of analysts' average forecast of £252m and up from £262m last year.
M&S also raised its guidance for non-food gross margin for the full 2014/2015 year to growth of 150-200 basis points from growth of 100 basis point previously, and cut its operating cost guidance to a rise of 3.5% from 4% previously.
"The bull case for M&S has always rested on gross margin growth potential in clothing and the scope for cash returns, so M&S has delivered what they want today," said independent retail analyst Nick Bubb.
M&S raised its interim dividend by 0.2 pence to 6.4p a share and said it would update on further potential shareholder returns when it publishes full-year results in May.
M&S's food business, which contributes over half of group sales, is performing better than clothing.
Its like-for-like sales rose 0.2% in the second quarter - in line with analysts' average forecast. Food gross margin was up 25 basis points over the first half.
The company said it now planned to open 200 of its "Simply Food" stores over three years, up from 150 previously.
"We are pleased with the progress we have made against our key priorities for the year: general merchandise gross margin, improving womenswear, driving food growth and cash generation," Bolland said.
M&S's online sales fell 4.6% in the second quarter having plunged 8.1% in the first quarter due to teething problems switching to a new website.
