By and  on January 7, 2009

LONDON — Despite sagging sales, planned store closures and layoffs, Stuart Rose, chairman of Marks and Spencer Group plc, is optimistic about the future.

The head of Britain’s largest clothing retailer said during a conference call Wednesday that it was time for M&S to tighten its operations, and that there is a light at the end of the recessionary tunnel.

“We think it’s going to be tough going forward, and we need to keep our business lean and mean. We think we’ve taken robust action to take the business through a difficult year,” Rose said, adding that cost control was the new M&S byword.

Two hours before the conference call, M&S reported that third-quarter sales in the U.K. were down 3.4 percent in the 13 weeks to Dec. 27, despite a series of one-day, pre-Christmas sales to spur demand. Same-store sales fell 7.1 percent, while group sales were down 1.2 percent.

M&S also confirmed 1,230 job cuts, both from the shop floors and the London headquarters. M&S employs a total of 75,000, and the 450 layoffs at the head office represent about 15 percent of the workforce there.

Most of the job losses will come from 27 planned store closures. M&S said Wednesday in the trading statement that 25 of the stores are underperforming Simply Food stores, while the remaining two are small main chain stores.

The company said it expects U.K. operating costs for the 2009-10 fiscal year to be 1 to 2 percent below the previous year, a reduction of 175 million pounds, or $260 million at current exchange, to 200 million pounds, or $297 million.

“We are aware that the proposed changes set out will be difficult for those members of staff impacted. But, given that we expect challenging economic conditions to continue for at least the next 12 months, we believe we are taking the right action to maintain the strength of our business,” Rose said.

Freddie George at Seymour Pierce Research in London called the sales figures “poor,” but added that they were broadly in line with expectations. He applauded M&S for taking cost-cutting action.

“The outlook remains difficult,” said George, citing the strengthening dollar and strategic issues with the M&S store format. “Management, however, is taking action to reduce costs and is reviewing the store portfolio. There is more upside than downside” to the stock, he said.

M&S shares closed up 2.2 percent at 2.44 pounds, or $3.70, on the London Stock Exchange Wednesday.

During the conference call, Rose could not conceal his optimism, even in the face of the downbeat news. There was even a hint of Franklin D. Roosevelt in his speech.

“I believe that, for the rest of the year, a combination of falling prices and interest rates [will put] more cash into people’s pockets,” Rose said. “The biggest single word that needs to be addressed is confidence. The government has got to keep sending the message out that it will get better.

“Yes, it’s tough, but we’ll bounce out just as quickly,” he added. “Someone said these are the worst sales we’ve had for a decade, but a decade ago, there wasn’t a recession.”

He even put a shine on M&S’ pre-Christmas discounts, which failed to spur sales and dented margins in the quarter.

M&S expects U.K. gross profit for the year to be around 1.75 percentage points lower than the previous year, due to the retailer’s decision to increase promotional activity in the holiday season.

“Everybody does what they need to do. We kept pace with [our customers] and they kept pace with us. If the result was less profitability, fine, we’ll build our margins back later,” Rose said.

As a result of the lower gross margins, Seymour Pierce has downgraded its 2008-09 pretax profit forecast from 630 million pounds, or $958 million, to 590 million pounds, or $897 million, because of the lower gross margins.

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