MARKS & SPENCER SAYS IT STAYS LOYAL TO KINGS

JAMES FALLON

LONDON (FNS) -- Marks & Spencer has reinforced its commitment to keeping Kings Super Markets, West Caldwell, N.J., in the face of continuing reports that a sale is possible.

In discussing plans for the U.S. retailer, Marks & Spencer also disclosed plans for a new Kings format.

The reports of a possible sale of Kings have been stirred by Marks & Spencer's difficulties in food and apparel in its core U.K. market. Some financial analysts have called for the retailer to dispose of Kings as well as Brooks Bros. so it can focus on Britain.

But Peter Salsbury, who took over as Marks & Spencer's chief executive in February, stressed the retailer has no plans to withdraw from overseas markets.

"We are committed to being an international retailer," Salsbury told a news conference. "But we are not going to take any short-term decisions in that area. For example, Brooks Bros. and Kings are both valuable businesses and we are delighted so many people agree. But we plan to develop them as part of our group."

Salsbury's denial of any sale came as Kings reported a 5.6% drop in operating profit to $16.1 million on a 6.3% rise in sales to $407.1 million for the year ended March 31. The results compare with an operating profit of $17 million on sales of $382.9 million a year earlier. It was the second year running that profit declined at the 22-store chain.

Guy McCracken, the joint managing director responsible for Marks & Spencer's overseas operations, said Kings' performance was "satisfactory in a competitive marketplace."

He added that the drop in profit partially resulted from heavy investment in new stores and systems. In a boost to its claims that it will keep Kings, Marks & Spencer last week announced plans to open five stores at the food retail chain in the current financial year and remodel four.

The new stores include a new-format, 10,000-square-foot store in Hoboken, N.J., McCracken said. It is to be Kings' first store in Hudson County and "will feature a European market-style ambiance and emphasize fresh prepared foods and perishables for time-pressed customers," Alan Levitan, Kings' president and chief executive officer, said in a statement.

At least two of the other new stores will also be in the new format, while the remaining ones will be similar to Kings' existing stores, McCracken said. Kings last year tweaked the format of its stores with the remodeling of its West Caldwell unit. The renovation involved giving greater emphasis to prepared and value-added foods, expanding the hot foods and deli areas and adding a demonstration kitchen, fresh sushi and a cafe and coffee bar.

McCracken said he also wants to exploit more of the food-retailing synergies between Kings and Marks & Spencer. "I believe we can extract more from Kings for our other businesses," he said in an interview.

"The Hoboken store has things to teach us in how to develop and operate a neighborhood format like that and there also are trends that develop in the U.S. -- like natural and organic foods -- that we can exploit in Marks & Spencer."

Marks & Spencer overall reported a 54.7% drop in after-tax profit to $598.9 million (370 million pounds) from $1.32 billion on a 0.2% drop in sales to $13.31 billion from $13.34 billion. Its U.K. food retail division reported a sales rise of only 0.4% to $4.49 billion from $4.47 billion.

Marks & Spencer did not break out profit for its food operations in the United Kingdom but Andrew Stone, the joint managing director responsible for the United Kingdom, stressed Marks & Spencer has maintained its market share. The task now is to return to the growth path in food retailing, he added.

Marks & Spencer already has moved to speed up its product introductions. For example, the retailer recently introduced a new Cafe Select line of chilled meals in a few of its 295 stores and sold $137,000 worth in the first week. It then stepped up the rollout of the line and is now selling $805,900 worth a week, Stone said. Other new products include a children's nutritious prepared meals line and an organic one. Sales of both of these are doubling each week, he added.