Comment: It’s stop–start yet again at M&S

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THOSE who held off from hailing a turnaround at Marks & Spencer last May when the retailer unveiled its first annual profits increase in four years, and a small rise in its key clothing sales after 14 consecutive quarters of falls, have been vindicated.

The M&S recovery has been halted, with sales in general merchandise, which includes clothing, down 0.4 per cent in the first trading quarter of its new financial year.

Martin Flanagan

Martin Flanagan

It makes the company more of a curate’s egg than ever. Impressive progress is being made on profit margins, and the M&S online offering looks much stronger – even if up against soft comparatives after some glitches last year.

Meanwhile, M&S food remains the star turn it has been for years. But until chief executive Marc Bolland, in situ five years this August, shows he can crack the clothing conundrum judgment on his performance will be ­reserved.

The market’s take on M&S is that it is fundamentally a clothing business, with a food business attached. Not a successful food business held back by an under-performing clothing operation. The City will only be truly happy when general merchandise produces three or four quarters of consecutive like-for-like rises in sales.

Only then will M&S-followers believe the group has a sound strategy and assured future. Even so, there are some short-term gains to be enjoyed for those holding the shares.

The continuing share buyback programme is supportive of the share price through increasing the earnings attributable to the fewer shares circulating. This, along with a decent dividend yield of 3.1 per cent, is helping overall shareholder returns at M&S.

Capital gains, not just yield, are also part of the story, the shares having lifted 25 per cent over the last year, as compared to a 5 per cent fall for the Footsie index.

So there are financial consolations along the way for shareholders. But in itself these will not be enough to change sentiment towards the company.

The performance of the all-important clothing arm has become an almost psychological touchstone in assessing the business and its medium-term prospects. Bolland will not be able to wish it away.

Manufacturing remains in the doldrums

IT WOULD be welcome if George Osborne unveiled something in his Budget today to help Britain’s manufacturing industry.

The troubles in the eurozone are doing the sector no favours as sterling remains strong against the single currency and hobbles exports to our manufacturers’ largest exports market.

New data shows that the sector fell for the second consecutive month in May. A 0.6 per cent decline was far worse than the 0.2 per cent expected by City economists, and also outdid the 0.4 per cent fall in April.

The wider industrial production measure was better, showing a gain of 0.4 per cent. But this was boosted by a rise in output and quarrying, a notoriously volatile sector, so the underlying manufacturing performance is the better snapshot.

The Chancellor may have other things on his mind at present, not least £12 billion of welfare benefit cuts and personal taxation rates.

But if we are ever to attain the nirvana of a rebalanced economy, not overly skewed to the services industry and consumer spending, something needs to be done for our ball-bearing makers.