International News

By James Davey

LONDON (Reuters) - British retailer Marks & Spencer posted its lowest annual profit since 2009 on Tuesday, hit by a drop in clothing sales, and said growth this financial year would be held back by investments online and in logistics.

The 129-year-old firm, battling to reverse seven straight quarters of falling underlying sales in clothing and homewares, said it expected a stronger performance next fiscal year, when new fashion ranges deliver results and capital spending falls.

At that point, it would look at improving returns for shareholders, it said on Tuesday.

Marks & Spencer (M&S) shares, up around 30 percent over the past year amid periodic bouts of bid speculation but still well down on their 2007 highs, rose over 4 percent in morning trade.

"Lower capex (capital spending) guidance for 2013-14 onwards ... could mean improved dividends, share buybacks or even a one-off payout," said Panmure Gordon analyst Jean Roche.

M&S is spending about 2.4 billion pounds ($3.7 billion) over three years on store revamps, logistics, IT and systems, as well as selective investment overseas, as it seeks to become an international multi-channel retailer, connecting with customers through stores, the internet and mobile devices.

But it has struggled in a faltering economy and lost market share in its core womenswear business. Chief executive Marc Bolland is pinning his hopes on autumn/winter ranges that were unveiled last week by his new general merchandise team to generally positive reviews.

"However many operational improvements it makes, it's all immaterial unless the retailer can rediscover its panache," said John Ibbotson, director of retail consultants Retail Vision.

Bolland, brought into M&S in 2010 on a multi-million pound pay and performance-related bonus scheme, acknowledged the challenge, but was confident of success.

"Two years into a three year plan, we've made strong progress on the transformation. We know we've got a job to do on general merchandise and womenswear," he told reporters.

Chief Financial Officer Alan Stewart said M&S's investors backed the board. "They agree with the strategy, they agree with the investments we're making. They're recognising that it is a process of transformation," he said.

M&S also said it had appointed Patrick Bousquet-Chavanne as its new marketing director. Bousquet-Chavanne, currently corporate director of strategy implementation and business development, will succeed Steven Sharp in July.

PROFIT FALL

M&S, which serves 21 million shoppers a week from over 700 UK stores, made a profit before tax and one-off items of 665.2 million pounds in the year to March 30, a second straight fall, on sales up 1.3 percent to 10.0 billion pounds.

The profit compared with analyst forecasts of 640-670 million pounds, with a consensus of 658 million, according to a poll published on the company's website, and is a 3.2 percent decline on the 687.2 million pounds made in 2011-12.

M&S kept its annual dividend at 17 pence a share.

The group forecast an "underlying profit improvement" in the 2013-14 year but cautioned it expected to incur about 30 million pounds of non-recurring dual-running costs as a result of the transition to a new web platform and the opening of a new distribution centre in Castle Donington, central England.

Many UK retailers are finding the going tough as consumers, whose spending generates about two-thirds of UK gross domestic product, fret over job security and a squeeze on incomes.

M&S's profit fall, which was cushioned by a rise in sales at its upmarket food business, will likely impact Bolland's performance-related annual bonus.

Shares in M&S hit a five-year high last week after the unveiling of its new autumn/winter clothing ranges. They were up 4.5 percent to 460.25 pence at 0915 GMT, valuing the firm at 7.5 billion pounds. The stock traded at over 750 pence in 2007.

M&S forecast capital spending would be 775 million pounds in 2013-14, down from previous guidance of 850 million, and around 550 million in 2014-15, down from 600 million previously.

(Editing by Mark Potter)