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* M&S nearing end of 3-year, 2.3 bln stg investment plan
* CEO Bolland under pressure to show strategic plan working
* Underlying general merchandise sales down for past 10 qtrs
* Co due to give Q4 update in April, FY results on May 20
* Investors look for operational headway and/or cash return
By James Davey
LONDON, Feb 13 (Reuters) - Dogged for years by a poorperformance in clothing, British retailer Marks & Spencer Plc could soon unveil plans for a share buyback to helpreassure investors that a costly revamp is about to pay off.
Marc Bolland, chief executive since May 2010, has reported10 straight quarters of declining underlying sales in thegeneral merchandise division, which includes clothing, rampingup pressure on the Dutchman to show his strategic plans areworking.
Bolland, who is nearing the end of a three-year, 2.3 billionpounds ($3.8 billion) plan to address decades ofunder-investment, bought some time at Christmas when a strongshowing from the firm's food business offset a weak clothingperformance and lifted its shares.
Within clothing, Bolland said the group's key womenswearbusiness was showing signs of improvement under the managementof a new team, though he blamed fiercely competitive rivals andan unseasonably warm October for a fall in overall sales.
The shares have clung to their post-Christmas gains - up 13percent so far this year - but are still valued at 13.9 timesforward-year earnings expectations, a discount to the 17.4 timesmultiple for the UK sector as a whole, according to Reutersdata.
Some investors argue Bolland needs to dole out extra rewardsto keep them on side.
M&S's fourth-quarter trading update on April 10 and finalresults on May 20, when it is expected to post a third straightfall in annual profit and give guidance for the new financialyear, could prove critical.
"When they get to May, they're going to have to either showthat they are definitely making operational headway, starting toget some like-for-like sales growth on the general merchandiseside, or taking more market share," said a senior manager at oneof M&S's 20-biggest shareholders.
"Or they're going to need something more strategic to keeppeople happy," the investor said, pointing to the prospect of areturn of cash by way of a share buyback programme.
M&S said it would give any guidance along with its yearlyresults and declined further comment.
POT OF MONEY
May marks the end of Bolland's initial three-year drive totransform M&S into an international, "multi-channel" retailer,connecting with customers through stores, the Internet andmobile devices.
The group has spent heavily on revamping its clothingoperation, redesigning stores and overhauling logistics and ITto complement a new web platform set to go live this spring.
Having peaked at 821 million pounds in 2012-13, annualcapital expenditure will fall to about 550 million from 2014-15,giving M&S a material improvement in free cash flow, whichReuters data shows has fallen for the past three years to standat 311 million pounds in 2013.
"Clearly if you are spending a couple of hundred millionpounds less on capex, then that is a pot of money thatpotentially you could do something else with it," said theinvestor.
Such a payout may look relatively modest in the context of acompany with a stock market value of 7.9 billion pounds, butcould mount up if repeated over time.
Analyst Kate Calvert at brokerage Investec reckons M&S willgenerate about 100 million pounds of spare cash per annum fromthe 2014-15 year, while Exane BNP Paribas analyst Ben Spruntulisreckons a share buyback would add 3 percent to annual earningsper share in the 2015-16 and 2016-17 years.
Another of M&S's top 40 investors also said returning to amore normal rate of capex after the period of big spend oninfrastructure has raised the prospect of cash returns.
Elsewhere there are some grounds for Bolland to be moreoptimistic.
The third-quarter trading update did reveal M&S had clawedback a little market share in womenswear for the first time inthree years. And with spring/summer ranges well received by thefashion press late last year, some analysts are forecasting along-awaited return to like-for-like sales growth in generalmerchandise in the fourth quarter.
Bolland also has high hopes for M&S's new web platform,expected to launch in May, as well as its huge new e-commercedistribution centre at Castle Donington, central England, movingto full capacity, which he expects to build on alreadyabove-market growth in online sales.
The company's international growth should also accelerate,with nearly 150 store openings in the pipeline, while it shouldalso benefit from Britain's economic recovery and from wagesfinally starting to rise faster than inflation.
Ultimately it is underlying trends in clothing which arelikely to be the arbiters of Bolland's record.
"One would just like to see more impressive market sharemomentum," the second investor said.
