Marks & Spencer's Profits Drop 6%

LONDON -- The shares of Marks & Spencer (ISE: MKS.L) gained 6 pence to 394 pence during early London trade this morning after the retailer admitted its half-year profits had dropped 6%.

The FTSE 100 member confirmed underlying pre-tax profits had declined from 316 million pounds to 297 million pounds and adjusted earnings had slipped from 15.6 pence to 14.6 pence per share.

At least the dividend was held at 6.2 pence per share.

M&S blamed the profit shortfall mostly on "merchandising issues" identified within the group's spring and summer clothing collections. The issues caused like-for-like sales within the "general merchandise" division to drop 4% during the half.

However, the group did say "decisive action" had been taken and that the second quarter had witnessed an improvement.

Marc Bolland, the chief executive of M&S, said:

We are pleased to report a better performance across the business in the second quarter. We took steps to address the short term merchandising issues in General Merchandise and as a result, we delivered an improved performance. Food outperformed the market on a like-for-like basis.

Eighteen months in, we are making strong progress with our plan to transform M&S into an International Multi-channel retailer. Our new International stores are performing well, and our Multi-channel business is delivering strong growth.

Looking ahead, Bolland described recent trading as "volatile" and said he was "cautious" about the outlook for the rest of the year. He also claimed the full year could see gross margins improve by up to 25 basis points and operating costs increase by at least 3%.

Prior to today, City experts had forecast M&S's current-year underlying earnings to be approximately 33 pence per share and the 2012-2013 dividend to be around 17 pence per share. These projections mean the shares may trade at about 12 times potential profits and yield a possible 4.3%.

Whether M&S is a "buy" based on this morning's half-year figures, its share-price rating and the general outlook for the retail sector is of course up to you.

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