By  on May 23, 2007

LONDON — Marks and Spencer Group plc reported a 27 percent increase in profits to 659.2 million pounds, or $1.3 billion at current exchange, from 520.6 million pounds, or $1.03 billion, in the year ended March 31 on the back of record sales. It was the best profit figure M&S has seen since 1998.

Sales rose 10.1 percent to 8.6 billion pounds, or $16.9 billion, from 7.8 billion pounds, or $15.4 billion, with every product category posting a rise in revenues.

Chief executive Stuart Rose, who has been spearheading the store's turnaround for the past three years, called the year a "good" one, but warned the current one would not be easy.

"We expect the retail environment to become more challenging: Competition remains intense, and pressure on consumer spending as a result of interest rate rises will also increase. Nevertheless, we are confident we can make further progress in 2007-2008," he said.

The market took his words to heart: M&S' share price slid 4.7 percent to 7.03 pounds, or $13.80, from 7.38 pounds, or $14.50. Overall, analysts said there is concern in the market that sales might slow because of interest rate increases and belief the turnaround at M&S might have peaked.

The company said Tuesday it plans to pay a record bonus of 91 million pounds, or $179 million, to employees, including salespeople. As for Rose, he said Tuesday he is committed to the store until 2009.

Since he took over as chief in June 2004, Rose has revamped everything from the back office and supply chain operations to M&S' image in the eyes of the public. And while M&S may not be nearly as glamorous as its clothing competitors Topshop and New Look — or as inexpensive as the Tesco and Asda supermarket clothing ranges — it has been holding its own with the British consumer.

M&S remains the U.K.'s largest clothing retailer, with a market share of 11.1 percent, thanks in part to a slew of celebrity-driven ad campaigns featuring Twiggy, Erin O'Connor, Bryan Ferry and Dan Gillespie, lead singer of British band The Feeling.Rose has also initiated campaigns promoting M&S as a "green" store. Fair trade foods and organic cotton clothing line the shelves and racks of the stores. Later this year, a new generation of "green" M&S stores will open with low-energy infrastructures that reduce carbon dioxide emissions and conserve energy.

In the 2006-07 fiscal year, clothing sales rose 9.2 percent, with women's wear and lingerie performing particularly well. Women's wear market share jumped to 26.1 percent from 24.3 percent, while lingerie market share went to 26.1 percent from 24.3 percent.

Men's wear also posted healthy sales, and market share went to 10.3 percent from 9.6 percent. Formalwear was a big seller, with suits that range in price from 49 pounds, or $98, to 499 pounds, or $998.

In a report Tuesday, Richard Ratner from Seymour Pierce in London said he was upbeat about M&S' prospects despite the gloomy reaction from the market.

"Its major exposure is to clothing and food, two areas likely to be less affected by any downturn in U.K. retail," Ratner said.

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