Rose may lack stamina to halt wilting profits at MS

LONDON BRIEFING:WHEN MARKS & Spencer shareholders gathered at London's Royal Festival Hall four years ago, it was a jubilant occasion - Stuart Rose had just been parachuted in as chief executive and was hailed by investors as the saviour of Britain's biggest clothing retailer. In the face of such loyal support, would-be bidder Philip Green swiftly turned tail and abandoned his £9 billion (€11 billion) bid.

This afternoon, at 2pm, MS shareholders will gather at the concert hall once again for their annual meeting - but the mood will be dramatically different. Instead of the spontaneous standing ovation enjoyed by Rose four years ago, the company instead faces the biggest shareholder revolt in its history.

Many investors were already uneasy at the elevation of Rose, now Sir Stuart, to the post of executive chairman in a move that flouted corporate governance guidelines.

But last week's shock profits warning, which sparked an unprecedented 30 per cent-plus plunge in the company's shares, has enraged shareholders and is raising fresh questions over the future of the business. Is Rose, as some analysts believe, little more than a smart bull market operator?

Despite a sizeable share buy back programme, the MS price has more than halved over the past year and, despite a boost yesterday on the back of vague hopes of a return bid from Sir Philip Green, they are trading at little more than 200p. Investors may well look back wistfully on the 400p offer they so roundly rejected from the TopShop and BhS tycoon in 2004.

According to Rose, the consumer spending slowdown was largely behind the profits warning that sent MS shares plummeting last week. But the City is not minded to be so understanding and, while consumer spending is clearly a factor, most analysts believe the real fault lies with the Rose regime.

Just two months ago, Rose was celebrating the company's return to a £1 billion profit for the first time in 10 years. But that figure was achieved only by slashing staff bonuses and it quickly became apparent that it would be only a brief return to the £1 billion club.

Most analysts were expecting profits to fall back to between £850 million and £900 million anyway this year but those forecasts have now been slashed by 20 per cent, with some analysts forecasting just £700 million. Prospects for next year look even worse and the bad news for shareholders is that the generous dividend payment could come under threat too.

Core clothing sales have been been poor but the performance of the foods business, where sales have also gone into reverse, has particularly been called into question. The unexpected sacking last week of foods boss Steve Esom, who was poached from Waitrose just a year earlier and was seen as a possible successor to Rose, did little to reassure the City.

MS, positioned right at the top of the market, is suffering from the trend among shoppers to trade down, but there are also grave doubts about its new strategy to turn itself into a full-service food store. In total, 140 products ranging from pet food and toilet cleaner to beer, beans and toothpaste will be on sale at selected stores and, MS hopes, it will persuade consumers to do their weekly shop there.

Up to 30 per cent of the group's shareholders are expected to rebel against Rose's controversial elevation from chief executive to executive chairman, either by voting against the resolution or abstaining. Some leading institutional investors have already made it clear that they intend to oppose the company's report and accounts and abstain on Rose's appointment as chairman.

MS's army of individual shareholders are generally a pretty loyal bunch. But their patience will have been severely tested by the plunging share price - and some will not have been impressed with recent stories in newspaper diary columns about their party animal chairman apparently storming off after being asked to queue for entry into his favourite Mayfair nightclub, Annabel's.

Does he have the stamina, they may well wonder, to see MS through the deepening downturn?

• Fiona Walsh writes for the Guardiannewspaper in London