Keep it quiet: the sparkle is back at M&S

WHAT a difference a year makes. Just 12 months ago, everything was going wrong for Marks & Spencer. Its clothing sales were falling. Morale at its head office was at rock-bottom. The company was embarking on an inelegant withdrawal from its overseas operations. M&S was a mess.

People were seriously asking whether Luc Vandevelde, recruited at the start of 2000 to turn the company around, would last the year.

And now? On Wednesday, Vandevelde will deliver a raft of cheery news about the company's fortunes. Food sales - which scarcely faltered, even during M&S's worst times - are up. Clothing sales are up (probably by even more than most people realise). The share price is up - nudging £4 and more than double its level at its nadir.

Vandevelde still faces problems. He missed his self-imposed deadline for selling the American Kings supermarkets business by the end of March. (The preferred buyer, it seems, is struggling to secure firm financing.) And despite its recent recovery, M&S is still a mile away from the £1 billion-plus annual profits peak of 1998.

But two of Vandevelde's problems are of the sort that most chairmen would love to have. First, he knows that the market's violent swing in sentiment - from despair about M&S a year ago to unbridled optimism now - holds its own danger. Just as the pessimism was overdone in the spring of 2001, so there is a risk of irrational exuberance in spring 2002.

Certainly, M&S's sales look strong. But they are being compared with truly dreadful figures a year ago. By the autumn, M&S will face a tougher challenge in showing strong year-on-year gains. And in any case, selling clothing has been a cinch over the past 12 months - for any retailer. The market has boomed. That boom won't last.

Hence Vandevelde's first welcome 'problem' - ensuring that expectations about the company's future performance are not overblown.

And his second? It is not long since M&S handed £2 billion back to its shareholders. Conventional wisdom had it that the company's balance sheet was 'inefficient' and that a bit of gearing would be no bad thing.

But as long as the company avoids too many upsets, its cash pile will, within three or four years, be building up again.

And what might M&S do with it? It could simply increase its regular dividends. Or it could make a second-special payout to shareholders. But that is rather less exciting than investing the money.

So how might M&S invest it? That is a great unknown. The company has its nascent chain of small convenience food stores, Simply Food, which appears to be doing extremely well and could be expanded. But doing so would hardly eat up a lot of cash.

What else? One area that Vandevelde feels is underexploited is M&S's 'home' range - merchandise stretching from furniture and curtains to alarm clocks and stationery. Put simply, 'home' embraces things you can't wear and you can't eat.

The full home range is in only 41 stores. A further 27 have a share of the range and there is a smattering of 'home' goods in 36 others. Don't be surprised if M&S were to experiment with the idea of stores offering just the home range.

Hence one could envisage over the coming few years a cluster of different types of outlets under the M&S umbrella - the established stores we know so well; an increasing number of Simply Food convenience outlets; and perhaps something under a title such as M&S At Home where you could pick up a vase, order a sofa or buy a picture frame.

As Vandevelde will remind us on Wednesday, there is much to do to get the established, core M& S operation motoring before the company becomes distracted by new projects. And he doesn't like to be rushed into doing things.

It is this last point which perhaps helps explain why M&S issued such a strange statement last week after a number of papers suggested that Vandevelde is ready to cede the chief executive half of his job to Roger Holmes. (Vandevelde would remain chairman.)

We said in January that Vandevelde was happy with the idea that the jobs of chairman and chief exec should be split. We also reported that he thought this year's July annual meeting would be 'as good a time as any other. It would be symbolic.'

M&S last week felt moved to issue a statement of masterful ambiguity. It said it 'does not intend to make any announcements about the leadership of the company at this time'. (My italics.)

Which means what? Assume Holmes will indeed become chief executive. Assume his appointment will be announced by July. But assume we'll hear nothing this week.

Wednesday's statement will concentrate on delivering good news - in decidely low-key fashion. Remember, we're not meant to be too excited.