Jeremy Warner: Has the tide turned for M&S? Dividend decision will tell it all

Outlook Once the City's pin-up boy, Sir Stuart Rose, chairman and chief executive of Marks & Spencer, has had his fair share of brickbats since the downturn on the high street first started to bite a year and a half ago. Might yesterday, when the group was able to announce that it had been swimming against the recessionary tide rather more strongly than anyone thought, have marked a turning point in his fortunes?

OK, so like-for-like sales in the final quarter were still down 4.2 per cent, which set against the main supermarket groups looks poor, but this was also a big improvement on the 7.1 per cent decline of the third quarter and much better than anyone had been expecting. The news had short-selling speculators running for cover, and one wrongfooted analyst complaining bitterly that not only had M&S been guilty of cynical news management but that it had also been economical with the actualité on market share guidance. Poor dear. It must have hurt to have got it so wrong.

In any case, M&S seems to be getting a grip once more. Success with the new Portfolio womenswear range and the group's "dine-in" food promotions has got things moving in the right direction again. The fightback, both in foods and clothing, appears to be working. So much so that it is now even possible that M&S might be persuaded to hold the final dividend, an idea thought out of the question just a few months back. It's going to be a lively debate.

Much depends on how trading shapes up over the next month. Anything that increases debt and strains investment will be judged by the board as too high a price to pay. But if directors can see their way to dividend cover beginning to improve again in 2010/11, then they will be minded to protect income and pay up.

At this stage, the decision is too close to call. Pre-tax profits for the last financial year are expected to come in at about £600m, with consensus forecasts settling at around £470m for 2009/10. Even the second of these numbers would cover the dividend – just about. The question is, what's the outlook the year after?

Historically, M&S has proved relatively resilient in a recession. This time around, it has been rather harder hit. Is that Sir Stuart's fault, as some in the City suggest? Sir Stuart admits to mistakes, particularly in foods, but insists that the problem is 75 per cent market-driven. Some shareholders are demanding that he split the roles of chairman and chief executive, or go. With no obvious successor, that still looks like the wrong call. Yesterday's more positive news plainly helps Sir Stuart's cause, but he needs to keep up a steady flow of the same to vanquish his critics entirely.