Marks & Spencer Cuts Full-Year Target

Marks & Spencer Group Plc (MKS), the U.K.’s largest clothing retailer, reported first-half profit that beat analysts’ estimates and said costs will rise less than forecast as it addresses a “challenging environment.”

Pretax profit declined 8 percent to 320.5 million pounds ($514 million) in the six months ended Oct. 1, the London-based company said today, exceeding the 313.3 million-pound average estimate of 12 analysts surveyed by Bloomberg. The retailer forecast operating expenses for the year will rise 3 percent, compared with a previous prediction of 5 percent.

Marks & Spencer rose as much as 6.7 percent in London trading, the steepest gain since April 6. Chief Executive Officer Marc Bolland is seeking to increase efficiency at the retailer as profitability is squeezed by rising commodity costs and a need to keep prices down. Gross margins for the year will be “broadly flat,” Marks & Spencer also said today, compared with previous guidance of a 0 to 25 basis-point improvement.

“I’m not surprised they cut the gross margin guidance given the promotional environment,” said David Jeary, an analyst at Investec Securities with a “buy” recommendation on the shares. “That slight negative however is offset by the operating cost guidance, which I think given the current environment will be taken positively.”

The shares rose 4.8 percent to 341.5 pence at 8:32 a.m. in London trading. They have fallen 7.5 percent this year.

‘Challenging Environment’

U.K. general merchandise sales fell 1.3 percent in the first half, the company said. Bolland aims to revive growth by bolstering each of its clothing brands with specialist managers, in-store presentations and advertising campaigns.

“The second half of the year has started in line with our expectations,” the CEO said. “We will continue to manage the business for a challenging environment with particular focus on offering great value to our customers and tight control of costs and stock. We remain cautious about the outlook but are well set up for the all important Christmas period.”

The retailer said group capital expenditure this year will be about 700 million pounds to 750 million pounds, compared with an earlier target of 900 million pounds.

Bolland aims to increase the retailer’s sales to as much as 12.5 billion pounds by fiscal 2014 as it expands into France, China and India and bolsters it online offering.

Best Buy Co., the world’s largest consumer-electronics retailer, yesterday announced plans to shut its U.K. shops, while Next Plc has said consumption is weakening and Asos Plc, the U.K.’s second-largest online clothing retailer, has warned of increased discounting.

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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