Optimism that Marks has recovered spark

The recovery hopes of a clutch of retail stocks will be put to the test this week, with Marks & Spencer and WH Smith among firms hoping to prove they have the right strategy to overcome the current slowdown on the high street.

The recovery hopes of a clutch of retail stocks will be put to the test this week, with Marks & Spencer and WH Smith among firms hoping to prove they have the right strategy to overcome the current slowdown on the high street.

Broker upgrades have fuelled optimism surrounding Marks & Spencer in recent weeks, although this will come crashing down tomorrow if evidence from the second quarter fails to point to a bottoming out in its sales decline.

It should be the biggest test yet for chief executive Stuart Rose, as autumn ranges will reflect his ideas rather than the designs of previous management.

While tough trading conditions will cloud the outcome, any suggestion that the worst may be over for the retailer is likely to reinforce views in the City that M&S is worth the 400p a share that Bhs owner Philip Green was willing to pay last year before he abandoned his £9.1bn takeover campaign.

At its last update, M&S said like-for-like sales fell 5.4% in the 14 weeks to July 9 with the biggest falls in clothing and homewares.

Among changes from Mr Rose, M&S has attempted to secure better deals from suppliers and kept better control of stock. It has also embarked on a major pre-Christmas advertising drive featuring Sixties supermodel Twiggy.

WH Smith chief executive Kate Swann will look to buy more time for the retailer's recovery strategy when she presents annual results to analysts and investors on Thursday.

Profits of around £71m are expected for the year to August 31, up from losses of £135m a year earlier after intense competition from supermarkets exposed the failings and lack of focus at the group.

Under Ms Swann, the group has launched a three-year plan to drive cost savings of £30m and concentrate on the parts of the business that shoppers look for WH Smith to be strong in, such as greeting cards and books.

So far so good for WH Smith, but analysts will be anxious to learn how the company intends to lure in Christmas shoppers at a time when trading conditions are seen as being the toughest in two decades.

Moss Bros will take another step in its recovery on Wednesday when it unveils half-year profits of at least £1.4m, up from £700,000 a year earlier.

The group, which includes the Moss, Cecil Gee and Hugo Boss brands, forecast the figure in August when it said like-for-like sales rose 3% in the six months to July 30, even though the final weeks of the period were influenced by the impact of the London bombings on its stores in the capital.

Improved product ranges and changes to the supply chain have boosted Moss, which is now on course for full-year profits of £7.6m, against the £5.5m seen a year earlier.

Sportswear chain JJB Sports is expected to show a sharp fall in interim profits when it updates the City after suffering what it has described as the toughest trading conditions in memory.

A vicious price-war among operators in the sector recently claimed the scalp of operator Allsports, while rival JD Sports warned trading had been disappointing since the end of July 30.

Analysts will be more anxious to find out whether JJB has managed to escape this gloom. Investec Securities believes the anniversary of the end of the Euro 2004 football tournament at the end of June should have triggered some recovery from JJB's 9.4% decline in same-store sales seen in the 22 weeks to July 3.

Investec is looking for pre-tax profits of £15.5m for the company's first half on Wednesday, down from £28m last time.

Cosmetics specialist Body Shop has managed to shelter itself from the harsh climate on the UK high street by increasing its presence elsewhere in the world - as demonstrated by its move into Russia last week.

Traders will therefore not be too worried if UK like-for-like sales have slipped from the 7% increase recorded for the three months to the end of May, as predicted by broker Numis.

The chain has been one of the rare bright lights on the UK high street after a rebranding lifted its fortunes.

Despite this, profits are set to have fallen in the first half of its financial year due to the acquisition of various franchised operations, which increase the group's dependency on the Christmas trading period.

Numis expects Body Shop to post pre-tax profits of £6.8m on Thursday, down from £8.1m last year.

Investors will be anxious to find out how tough markets have been for Northern Foods when it issues a trading statement on its first half today.

Northern, which makes Dalepak frozen foods, Goodfella's pizzas and Fox's biscuits, said in July that first quarter trading had met hopes despite very competitive markets.

The company began a shake-up in late 2003 to correct a string of disappointing financial results. It has merged 15 former operating companies into three divisions and shut two plants, including one in Carlisle.


David Whetstone
Culture Editor
Graeme Whitfield
Business Editor
Mark Douglas
Newcastle United Editor
Stuart Rayner
Sports Writer