Marks and Spencer: On your marks

From underwear and underwhelming performance to brown suede skirts and outperformance. Marks and Spencer's better than expected 0.7 per cent rise in like-for-like general merchandise (mostly clothing) sales in its fourth quarter prompted an initial 6 per cent share price pop on Thursday.

Investors have waited 15 quarters for a turnround in the UK chain's general merchandise fortunes - forecasts were for a 1.2 per cent sales decline. M&S put its stronger clothing and home furnishing sales down to quality and style - with a brown suede skirt receiving rave reviews. One quarter does not make a trend, however.

M&S stuck to guidance for a 150-200 basis point improvement in its general merchandise gross margin and forecast lower operating costs for the year to March. Yet there is work to be done in its international business, where a falling euro and weakness in Russia, Ukraine and Turkey were behind a 6.3 per cent fall in sales.

It spent less on general merchandise promotions in the quarter. But with tough competition from the likes of Next, with its efficient online and physical catalogue operation, M&S could struggle to sustain its touted full price discipline, especially online. Sales at its relaunched web business were 13.8 per cent higher, rebounding after last year's woes at its distribution centre, but it is not clear those problems have been solved. Online is more promotion-driven, because it is easier for customers to compare prices. Over time, internet sales could cannibalise in-store sales, though 54 per cent of online sales still are collected in store.

Customers keep paying up for M&S food, despite a UK supermarket price war. Same store food sales were 0.7 per cent higher - their 22nd quarter of like-for-like growth - beating peers.

Until chief executive Marc Bolland can show successive reporting periods of general merchandise sales growth, however, M&S's value is captured well in its earnings multiple. The company's enterprise value is 8 times next year's earnings before interest, tax, depreciation and amortisation - Next trades on 11 times. The trend is Mr Bolland's to lose.

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