Bolland under pressure over M&S relaunch costs

Twiggy jacket and skirt, part of the Marks & Spencer 2013 autumn/winter collection, which was launched last week
Twiggy jacket and skirt, part of the Marks & Spencer 2013 autumn/winter collection, which was launched last week
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MARKS & Spencer boss Marc Bolland will aim to soothe City concerns this week over the cost of relaunching the retailer’s range of clothing as the chief executive aims to stem the chain’s decline in profits.

Last week M&S unveiled the first range of clothes masterminded by former Debenhams and Jaeger boss Belinda Earl and general merchandising supremo John Dixon.

But analysts accused M&S’s management team of ducking questions over how they would measure the short-term success of the clothing ranges and what impact the extra investment will have on profits.

Geoff Lowery, an analyst at Redburn, said: “The group’s reluctance to engage in a ­debate about bottom-line ­returns is not acceptable as M&S’s UK retail margin – ­excluding M&S Money – plumbs new modern-time lows, after choosing to invest circa £2.3 billion in the three years to March 2014.”

Cantor Fitzgerald analyst Kate Calvert added: “The new plan, we believe, will have cost implications, which could potentially involve store refurbishments, a ­re-branding exercise and an increase in marketing costs. Capital expenditure may not fall in 2015 as originally forecast.”

M&S spent £766 million on capital expenditure last year, with a further £825m being pumped in this year.

On Tuesday, Bolland – who took over from Sir Stuart Rose as chief executive in 2010 – is expected to unveil a 7 per cent fall in full-year underlying profits from £705.9m to £658m. At the start of the financial year, City analysts had been pencilling in a £710m profit haul.

Weaker clothes sales led to an executive makeover last year, with Dixon brought from the M&S food division as head of general merchandise and Earl appointed style director.

The reshuffle hit a snag when “knicker queen” Janie Schaffer, hired to shake up the firm’s underwear division, walked out as director of lingerie and beauty after just three months.

Earl’s emphasis on “quality, stylish fashions” and “looking upwards for aspiration” – with styles ranging from punk and fake fur to 1940s inspired dresses and a leopard print pencil skirt – impressed some in the City, but others believe M&S has a long way to go.

Last week’s launch of the autumn-winter 2013-14 range is the first key test for the new management team.

Clive Black, an analyst at Shore Capital, said M&S still held appeal to investors.

“We see it as a company self improving, making progress around the edges but now dealing with the core,” Black said. “We are excited about the fall-back in investment and so a step-up in free cash generation. We also like improved free cash cover of a rising dividend stream. M&S has an attractive income yield.”

Black said the stock was also supported by talk of a “real or perceived” takeover. In March, sources close to the Qatar Investment Authority denied it was preparing to mount an £8bn approach.