Rose pledges to take M&S higher

Stuart Rose has vowed that Marks & Spencer will keep taking market share as it moved beyond its "recovery" phase after enjoying one of the strongest Christmases on the high street.

The chief executive said yesterday an "embarras de richesse", which includes its new consumer electronics lines, would help the retailer become "super fit" as it heads towards profits of £1bn.

He was speaking as M&S unveiled a 5.6 per cent rise in underlying sales during the 13 weeks to 30 December. Sales of general merchandise, which spans everything bar food, shot up 7.2 per cent on a like-for-like basis during the period.

Despite his confidence about M&S's prospects, Mr Rose said a tough backdrop would make the next few months more difficult. "We can expect some slowdown as we go forward," he cautioned.

One of M&S's biggest shareholders took advantage of the retailer's sixth consecutive quarter of underlying sales growth - and the stock's record high - to pocket £188m from selling 27 million shares at 697p.

City sources pointed to Brandes Investment Partners, M&S's biggest shareholder, which has made hundreds of millions of pounds from its investment in the retailer, as the culprit. The shares were placed by Citigroup, which is one of Brandes' brokers. Even so the US value investor, which has sold 9 million M&S shares this year, would still own 7.1 per cent of the retailer.

Shares in M&S, which have more than doubled since Mr Rose was parachuted in to see off the advances of Sir Philip Green, closed down 4 per cent at 696p.

After months of shying away from admitting that Marks had turned the corner, Mr Rose yesterday conceded: "Yes we've recovered with a small 'r'. We're out of the intensive care ward and we're pretty robust actually."

He said compared with the false dawn under his predecessor but one, Luc Vandevelde, "the recovery is built on a different set of foundations" - selling more appealing products in nicer-looking stores with better service. "We still have a heck of a lot to do ... recovery sounds so finite," Mr Rose added.

Strong sales across womenswear, menswear and childrenswear contributed to the strong rise in sales of its general merchandise. Knitwear, especially cashmere jumpers, was in high demand, helping M&S snatch back a further percentage point share of the womenswear market, which stood at 10.9 per cent at the start of December.

M&S's turnaround has come at the expense of rivals squeezed in the middle ground between discount fashion chains and more upmarket ones. "There was an 11 point difference between Next and ourselves. That says something," Mr Rose added.

Tony Shiret, a retail analyst at Credit Suisse, said: "There won't be many that do bigger like-for-likes over Christmas. But investors are waiting for the next stage of the strategy."

After refurbishing one-third of its store estate, M&S has another third to do this year, and the last third in 2008. It is embarking on an ambitious space expansion programme and also plans to overhaul its website so that it can sell all of its products online. It wants to increase its web sales from between £100m and £150m a year to £500m "over time". It believes that moving into new product categories, such as flat-screen televisions, will help.

Mr Shiret said the retailer also had work to do on its higher-priced clothing lines. "What we really need is to see some consistent product. It's still a little inconsistent," he added.

Mr Rose warned consumers not to expect cheaper clothes in what would be a tougher year for retailers. "The appetite for reducing prices has diminished," he said.

M&S expects to pay out more than £74m in bonuses this year, provided it has a good final quarter of its year. Its sale, which did not start until 27 December, ends this Saturday. On top of their bonuses, 12,000 staff will benefit from gains in Sharesave schemes worth £56m that mature this month.

... but food lines fail to tempt shoppers away from rivals

Not all of Marks & Spencer's figures impressed the City. Its food business, pitched at the top end of the market, appeared to lag rivals such as Waitrose. Underlying sales grew 3.6 per cent during its third quarter, a slowdown from the previous three months.

The days are long gone when M&S had to itself the market for top-quality ready meals. It now faces competition, even from Asda. All of the main British supermarket chains have relaunched their premium lines in recent weeks, reflecting the new focus from shoppers on buying the best-quality food.

The rise in popularity of cooking meals from scratch also poses a threat to M&S's food business, which contributes half of the retailer's revenues. M&S barely sells any ingredients, save its selection of pre-prepared vegetables.

Stuart Rose, the chief executive, defended the group's food performance, insisting he was "happy".

He said he "didn't believe" it had done worse than Waitrose, which grew its like-for-likes sales by 5.6 per cent over the shorter five-week period to 6 January.

Total food sales rose 9.5 per cent, helping the group to improve its market share to 4.3 per cent, it said.

As M&S revamps its store estate it is decreasing the amount of floor space devoted to food by 10 per cent, to free up more room for higher-margin clothes lines.

Susie Mesure