• Group profit before tax and exceptional charges* up 20.1% to £220.3m.
  • UK Retail sales level, with second quarter sales up 2.8%.
  • UK Retail operating profit up 18.2% to £147.4m.
  • UK profitability increased by improved sourcing together with containment of operating costs.
  • Adjusted earnings per share* up 23.3% to 5.3p.

*excluding the effect of Continental European trading losses of £26.4m, which were provided for last year.

Commenting on the results, Luc Vandevelde, Chairman and Chief Executive said:

“We are making good progress against the restructuring strategy and recovery plan we announced at the end of March. Our focus on UK Retail is showing early results and the restructuring programme is proceeding well.

The steps taken to strengthen the UK Retail team are beginning to deliver results. In Clothing, we have had an encouraging response to the improved appeal, quality and fit of our autumn merchandise, exemplified by the successful launch of the ‘Perfect’ campaign, with its focus on classically stylish merchandise for our core customers.

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We continue to see the benefits from changes in the way we source merchandise, with a further improvement in the Clothing buying margin being achieved at the same time as offering better values to customers.

Our Food business has performed well. We lead the market in both product quality and innovation and continue to explore ways of extending the reach of our food offer. The trials of the ‘Simply Food’ format, small convenient food only stores, have been successful and we are seeking further suitable locations.

We have modernised a further 25 stores in the first half of this year as part of the programme to create a more attractive, easy-to-shop environment for our customers. We are on target to renew 100 stores by the end of this financial year which, together with the concept stores modernised last year, will represent two-thirds of UK Retail space.

To date we have closed the Direct clothing catalogue operation, announced the sale and leaseback of 78 properties in the UK and are on track to complete the sale of all our stores in Europe.

The trading pattern we reported in the second quarter has continued. The economic outlook, however, remains uncertain as we approach the important Christmas period. I am encouraged by the progress we have made and am confident that the strength of the Marks & Spencer brand, together with the value and quality of our improved offer, give us a firm base on which to build”.



Group turnover (net of sales related taxes) at £3,738.2m was marginally down on the same period last year.

Group operating profit* at £215.9m increased by 24.6%.

The results for the Group include the results of those businesses we plan to sell or close. If these are excluded, the turnover and operating profit for the ongoing Group, consisting of UK Retail, Financial Services, Republic of Ireland and Franchises, become:

26 weeks ended  
  29 Sept
30 Sept
% inc/(dec)
Turnover from retained businesses 3,222.0 3,232.7 (0.3)
Segmental operating profit from
retained businesses




Group profit before tax* increased by 18.7% from £179.7m to £213.3m.

Corporation tax has been charged at an effective rate of 31.6% (last year 33%). This year we are required to adopt the new accounting standard on deferred tax. This has increased the effective rate of tax by approximately 1.6% (last year an increase of 2.0%).

Adjusted earnings per share* has increased by 23.3% to 5.3p (last year 4.3p).

The dividend is maintained at 3.7p and is covered 1.4 times.

Group cash flow for the period (before financing) is strong at £182.8m.

* excluding the effect of Continental European trading losses, which were provided for last year.


UK Retail turnover (net of sales taxes) was level with last year.

UK Retail operating profit at £147.4m was 18.2% up on last year, as we continue to see the benefits of more cost-effective sourcing and the containment of operating expenses.

Sales performance for the first half (including VAT) is set out in the table below. After declining by 3.4% on a like-for-like basis in the first 14 weeks, sales grew at 2.1% in the following 12 weeks.

% inc/(dec) on last year

14 weeks to
7 Jul
12 weeks to
29 Sept

26 weeks to
29 Sept

Like for like
Like for like
Like for like

Clothing, Footwear and Gifts






General merchandise



At the end of the period, we traded out of 310 stores, including 8 Outlet stores. Total UK selling space at the end of the period was 12.3 million square feet.

The second quarter Clothing sales performance was significantly better than the first, with positive customer reaction to classically stylish autumn ranges and the ‘Perfect’ promotion.

The Per Una collection was launched in 31 UK stores on 28th September and only two days are included in these results; their effect is therefore negligible. Since then, the range has been introduced to a further 23 stores. Initial customer response has been very positive.

The performance of our Home business was adversely affected at the start of the period by the announcement to close the ‘Direct’ clothing catalogue business. This impact was short-lived and the Home business has subsequently recovered helped by strong furniture sales.

In the first half, we reduced average selling prices for General Merchandise by approximately 3.5% as part of our continued drive to offer outstanding product at very good value. Volumes also declined in the first half of the year by approximately 1.4%, but this was at a much reduced rate than previously. Volumes have increased following the launch of the autumn ranges in September and our market share has stabilised.

Sourcing improvements continue to deliver margin benefits against last year, particularly in Clothing where we have delivered an improvement in excess of three percentage points in the buying margin.

Our Food business continues to perform well. Sales benefited from inflation on like-for-like products of just under 3%, a figure which peaked at over 4% in May, but which has declined in recent months. During the period we opened two new 10,000 sq. ft. stand-alone food stores in Milngavie (outside Glasgow) and Sale. In July, we opened two ‘Simply Food’ outlets. Both trade on approximately 3,000 sq. ft. Performance to date has been encouraging.

Operating cost increases in the first half were contained at 2.2%. These costs include increased pension costs following the actuarial valuation of the pension scheme (see note 5) and further expenditure on store modernisation. These have been partially offset by savings in marketing costs (following expenditure in the first half of last year to relaunch the brand) and cost savings arising out of the closure of our ‘Direct’ clothing catalogue operation.

We expect the increase in costs to be higher in the second half as we roll out the renewal programme to more stores and anticipate the impact of performance awards to employees which are linked to sales and profit targets. Overall we estimate the full year cost increase to be approximately 3%. This excludes the impact of the sale and leaseback transaction announced last week.


Operating profit from Financial Services declined by £4.9m to £44.0m in the first half. Within this, the operating profit from Financial Services retailing activities was £41.5m (last half year £42.2m). The balance of the decline in operating profit is attributable to our captive insurance company, where the fall in world markets in September led to losses on the revaluation of its investment holdings.

Customers’ use of the Chargecard has stabilised at approximately 20% of sales, following the acceptance of generic cards in stores last year. Customer borrowings have remained stable at approximately £650m, with slightly higher margins offset by a small increase in the provision for bad debts.

Gross profit from loan products is broadly in line with last year.

Start-up losses continue to be incurred for Personal Lines insurance and Mortgage Protection products, which were launched towards the end of the first half of last year.

We recently held a discount day in stores for our Chargecard holders which was well received by existing cardholders and generated a high number of new accounts. Our customers have shown significant loyalty to the card and work is under way to identify an effective way of rewarding them.

Laurel Powers-Freeling has been appointed Chief Executive of Marks ∓ Spencer Financial Services and a main Board Director with effect from 6th November 2001.


Our International businesses fall into two categories: those we are retaining (Republic of Ireland and Franchises); and those we have announced our intention to sell or close.

Operating profits from our retained International businesses declined in the first half, as a number of our franchise partners encountered deteriorating economic conditions in their home markets. Our business in the Republic of Ireland performed well.

We continue to record operating losses in Continental Europe, but these have been offset by the release of the provision made last year and have had no impact on Group operating profit.

In a difficult economic climate Brooks Brothers incurred a loss in the first half, which was exacerbated by the events of September 11th. Our remaining businesses, Kings Super Markets and Marks & Spencer Hong Kong, performed in line with our expectations.


Cash inflow from operating activities at £397.2m has increased by over £200m compared to the first half of last year.

The strong cash flow from operating activities, coupled with a reduction in capital expenditure and the proceeds from sale of properties, has led to a cash inflow before financing of £182.8m. Of this, £49.3m has been used to buy back shares in the market.

Overall, net debt reduced by £135.5m to £1,142.3m at the end of the period.


In March we announced our intention to:

  • close the Continental European subsidiaries;
  • sell Brooks Brothers and Kings Super Markets;
  • franchise our business in Hong Kong;
  • close the ‘Direct’ clothing catalogue business; and
  • realise value from our property portfolio.

To date we have closed the ‘Direct’ clothing catalogue business; announced a proposal to sell the French business to Groupe Galeries Lafayette and the Spanish business to El Corte Ingles; and negotiated the sale of most of the properties in Belgium, the Netherlands, Germany and Luxembourg.

Work continues on realising value from our property portfolio, the first part of which was a sale and leaseback of 78 properties announced last week raising £348m.


It remains our intention to return £2bn to shareholders on a pro-rata basis in March 2002.