November 6, 2019 / 8:54 AM / 16 days ago

M&S turnaround held back by falling clothing sales

LONDON (Reuters) - Britain’s Marks & Spencer (MKS.L) reported a 17% drop in first-half profit, dragged down by falling clothing sales, but said it was confident it could fix its problems and return to growth, sending its battered shares higher.

FILE PHOTO: A view of a Marks and Spencer shop in Singapore December 14, 2018. REUTERS/Edgar Su/File Photo

Shares in the 135-year-old M&S, one of the best known names in British retail, were up 3.2% at 1008 GMT, paring losses for the year to 35%, after it forecast improved second half trading and said its latest attempt at a turnaround was making progress.

In September the group lost its place in Britain’s prestigious FTSE 100 index, symbolizing its decline.

M&S set out on its “transformation” plan shortly after retail veteran Archie Norman became chairman in 2017 to work alongside CEO Steve Rowe, who has been with the company for 30 years and became its boss in 2016.

Norman said in May last year the firm was targeting sustainable, profitable growth in three to five years and has been instrumental in speeding up the pace of change.

The retailer has been closing weaker stores, revamping ranges, investing in technology, and struck a 1.5 billion pound ($1.93 billion) joint venture with online grocer Ocado (OCDO.L) to give M&S a home delivery service for food.

“There’s a lot to do but I’d like to think that yes we’ve seen a low point and the start of something different,” Rowe told reporters when asked if M&S had reached its nadir.

He said that although the clothing division was about 18 months behind where he wanted it to be, there were signs customers were reacting favorably to new autumn/winter products, with improved sales in October.

“We are still in the early stages, but we are clear on the issues we need to fix,” he said.

Rowe said M&S had reduced the number of clothing lines it sells, while improving its styling and value. Availability had improved and clearance periods reduced.

“In some instances dramatic sales uplifts in categories where we have restored value, style and availability illustrate the latent potential and enduring broad appeal of our brand,” he said, pointing to women’s jean sales up 30% this autumn.

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But some analysts remain unconvinced.

“We think M&S has lost like-for-like market share in clothing & home and the problems with this business look to be deep-seated, with most of the solutions being things M&S has tried in the past,” said RBC Europe’s Richard Chamberlain.

In July Rowe sacked clothing division head Jill McDonald after publicly criticizing chronic availability and assumed direct leadership of the division himself.

The departure of supply chain director Gordon Mowat followed and in September M&S said finance chief Humphrey Singer was also leaving after little more than a year in the role.

FILE PHOTO: A view of a Marks and Spencer shop in Singapore December 14, 2018. REUTERS/Edgar Su/File Photo

M&S made an underlying pretax profit of 176.5 million pounds in the six months to Sept. 28 - in line with analysts’ average forecast but down from 213.0 million pounds in the same period last year.

Clothing and home like-for-like sales fell 5.5%, hurt by the availability and supply chain issues. Food sales increased 0.9% on the same basis, driven by volume as prices were cut and more family customers were targeted.

Reporting by James Davey, Editing by Paul Sandle and Emelia Sithole-Matarise

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