M&S Profit Slides as New Management Team Beds In

By Peter Evans

LONDON-Marks & Spencer PLC Group (MKS.LN) warned Tuesday that recent trading has been volatile as it reported a 10% drop in first-half net profit, but said it is on track to reverse months of underperformance in its clothing division as management changes start to take effect.

"We are pleased to report a better performance across the business in the second quarter," said Chief Executive Marc Bolland in a statement.

Mr. Bolland has faced a dire consumer economy in the U.K. since taking charge of M&S in May 2010, but has also struggled to overcome more fundamental problems facing the retailer, especially in its ailing clothing department. He pledged GBP500 million to improve U.K. stores and set out ambitious sales growth targets underpinned by international expansion. But he was forced to slash the targets in May following M&S's biggest quarterly sales drop for more than three years.

M&S is losing customers in its key womenswear market and failing to attract new, younger shoppers amid intense competition from the likes of Sweden's Hennes & Mauritz AB (HM-B.SK) and Inditex SA's (ITX.MC) Zara.

The company said same-store sales in the U.K.--measured from shops open at least a year--fell 1.4% in the six months to Sept. 29, slightly better than expectations after a strong performance by the food division. International sales grew by 3.6% in the period.

However, the retailer said same-store sales in its general merchandise business, which includes clothing and accounts for more than 40% of its GDP9.9 billion annual revenue, fell 4.3% in the half and 1.8% in the second quarter. It's the seventh successive quarter that the division has failed to show growth.

Discount fashion chain Primark, owned by Associated British Foods (ABF.LN), Monday posted a 3% rise in full-year same-store sales, highlighting the distance M&S still has to travel to catch up with rivals on the high street.

M&S said the impact of recent changes to its management team--including the appointment of a new head of general merchandise--would be felt by customers in the summer with the launch of new fashion lines.

M&S posted net profit of GBP227.2 million ($363.2million) in the first half, down from GBP252.4 million from a year earlier, on revenue slightly higher at GBP4.70 billion.

Pretax profit fell 9.7% to GBP289.5 million, above analysts' expectations of GBP281 million, according to FactSet data.

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