Before the credit crunch hit, Cityblogger used to get his shirts and suits handmade on Savile Row by Tito the tailor, a gentleman excellent with his hands, if a little over-zealous with his tape measure. But now that he and his City brethren are, according to the world’s press, all heading to financial hell in a handcart, Cityblogger is more likely to be found perusing the discount piles of Primark, donning a balaclava for shame. However some standards must be maintained no matter how difficult the times, and Cityblogger has, in time honoured tradition, continued to purchase his smalls at that shining example of British entrepreneurship - Marks & Spencer. So he was concerned to witness the five per cent drop in the retailer’s share price yesterday as it unveiled full year results.

Marks has been one of those wonderful City phoenix-from-the-ashes stories in recent times, fighting off its previous doldrums, poor ranges and an audacious bid from rival Philip Green to see glory days once again. But could the party now be over?

The food and clothing retailer unveiled profits of £1.1bn yesterday, yet in the midst of light we are in darkness. Trading in the new financial year has been mixed so far, and chief executive Sir Stuart Rose made cautious noises about future trading, admitting that market conditions are expected to remain “difficult” for the “foreseeable future”.

But it seems the consumer slowdown isn’t deterring Marks & Sparks from expanding aggressively into new markets abroad, as well as continuing to build its Direct business, with £800-900m of capital expenditure planned this year and retail space increased.

However, some commentators aren’t convinced these plans make sense in the current economic environment. Broker Oriel Securities issued a sell note on the shares this morning. “With increased financial leverage and operational gearing…M&S’s risk profile is rising sharply,” says analyst Eithne O’Leary. “The addition of 800,000 square feet [of retail space] in the year to March 2009 will put further pressure on sales densities that are struggling to show a return on the recent refurbishment spending…[and] we question whether this spending can be reasonably expected to add to returns rather than be seen as halting the decline.”

Ms O’Leary fears that hiking M&S’ cost base could make it vulnerable. “In an environment of ever increasing consumer caution, a 7 per cent higher cost base, even post £50m of cost savings, will expose the profit and loss account to extreme volatility should trade remain difficult and price competitive,” she points out.

With his delicate skin, Cityblogger sincerely hopes Sir Stuart won’t cut back on the quality of M&S undies in order to claw back some margin…

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