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M&S relies on food for growth as clothing struggles
April 11, 2013 / 6:26 AM / 5 years ago

M&S relies on food for growth as clothing struggles

LONDON (Reuters) - British retailer Marks & Spencer (MKS.L) posted a seventh straight quarterly fall in underlying sales of clothing and homewares, having to rely on a strong performance from its food business to deliver overall growth.

A woman sells copies of the homeless magazine The Big Issue outside a Marks and Spencer store in Leicester, central England, January 8, 2013. REUTERS/Darren Staples

Marc Bolland, chief executive of the 129-year-old retailer which has recently been the subject of takeover speculation, is under pressure to revive its clothing performance after a poor 2012 culminated in a disappointing Christmas.

However, he has repeatedly cautioned that a new general merchandise management team led by John Dixon, former boss of food, will not make a major impact on sales until M&S launches its autumn/winter collections in July.

Finance Director Alan Stewart said investors knew they had to be patient.

“What we’re hearing directly from shareholders is that they are supportive of our strategy ... and that they recognize it’s going to take time,” he told reporters on Thursday.

“From an executive perspective as well we are absolutely aligned on the strategy, we know what we’re doing and everybody is behind it,” he said.

Shares in M&S rose 3 percent after it said sales of non-food products, spanning clothing, footwear and homewares, at stores open more than a year fell 3.8 percent in the 13 weeks to March 30, its fiscal fourth quarter.

That was slightly better than analysts’ forecasts of down between 4 and 6 percent, but matched the fall of the previous quarter when M&S moved to protect profit margins by offering fewer discounts.

Like-for-like food sales rose 4.0 percent, ahead of analyst forecasts of an increase of 1.9 to 3.5 percent and a third- quarter rise of 0.3 percent.

The food division, which had a record Easter week, benefited from innovative products, such as Belgian chocolate mini hot cross buns of which it sold more than 600,000 packs, and from M&S being untainted by a horsemeat scandal that impacted some rivals.

VERY GLOOMY

M&S, which serves 21 million customers a week from over 700 British stores, said total UK like-for-like sales rose 0.6 percent.

“People had got themselves into a very gloomy frame of mind about M&S ahead of this statement, so any non-disastrous news was probably always going to make the shares bounce,” one top-10 M&S investor told Reuters.

“The clothing is no worse than people feared and the food is a little better, although some of the latter may be due to a benefit from the (earlier) timing of Easter.”

Bolland said M&S was making progress in general merchandise despite tough trading conditions, pointing to improved availability and stock management.

He dismissed speculation regarding his own position, saying: “I‘m thoroughly enjoying this job, I‘m thoroughly enjoying the challenge.”

James McGregor, director of retail consultants Retail Remedy, said the numbers had bought Bolland a few more months.

“Judgment Day for Marc Bolland will come later this year,” he said.

Many UK retailers are finding the going tough as consumers, whose spending generates about two-thirds of UK gross domestic product, fret over job security and a squeeze on incomes.

M&S’s update chimed with an industry survey on Tuesday which said growth in underlying UK retail sales slowed last month despite a boost from an early Easter, as cold weather hurt demand for summer clothes and shoes.

Last month fashion retailer Next (NXT.L) reported slow trading since the beginning of February, while department store chain Debenhams (DEB.L) issued a profit warning, blaming January snow.

Separately on Thursday British baby and maternity products retailer Mothercare (MTC.L) posted flat UK like-for-like sales in its fourth quarter, while books and stationery retailer WH Smith reported a 5 percent rise in first-half profit.

M&S stock last month hit a 28-month high after a newspaper reported that the Gulf state of Qatar was planning a bid. A source close to state-owned Qatar Holding denied the report, but speculation of possible private equity interest has persisted.

“If there would have been anything serious the (Takeover) Panel would have forced either party to come out with statements. Since you haven’t seen any statements the Panel has done its job,” said Bolland.

Additional reporting by Sinead Cruise; Editing by Kate Holton and David Holmes

Our Standards:The Thomson Reuters Trust Principles.
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