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Marks & Spencer's clothing sales recover as style focus pays off Marks & Spencer's clothing sales recover as style focus pays off
(1 day later)
Marks & Spencer's efforts to revamp its women's clothes collection have begun to pay off, with clothing sales recovering in the last quarter. Green shoots in Marks & Spencer's serially underperforming women's clothing business have been overshadowed by worries that profits at the high street stores group could fall yet further.
Shares in M&S rose 2.5% in early trading. Like-for-like clothing sales rose 0.6% in the last three months, ending many quarters of decline. M&S boss Marc Bolland said trendier styles were helping British women to fall back in love with the retailer. "We think we have made a positive step forward," he said. "We are encouraged by womenswear, which is showing clear signs of improvement and performed ahead of clothing."
The chief executive, Marc Bolland, who has been under growing pressure to revive the retailer's lacklustre performance since taking the helm four years ago, said womenswear was showing "clear signs of improvement", with total clothes sales 1.3% higher in the 13 weeks to 29 March, the chain's fourth quarter. M&S has signed up singer Annie Lennox, actress Emma Thompson and campaigner Baroness Lawrence for its cast of 'leading ladies' – its second advertising campaign photographed by Annie Leibovitz – to promote its spring and summer womenswear collection. Overall, like-for-like clothing sales were ahead 0.6%, M&S said – the first time the retailer has broken out the figures from general merchandise in a trading statement. The breakdown helped the embattled retailer to show progress despite a headline 0.6% decline in clothing and homewares sales – its 11th consecutive quarter of falling sales.
While the upturn in clothes sales was welcomed by City analysts, general merchandise, which also includes homewares, dropped for the 11th quarter in a row, slipping 0.6% on a like-for-like basis, and the retailer warned that promotions would drag down profit margins. The evidence that M&S's clothing business could be turning a corner initially lifted the shares yesterday, but they fell back to close down 3% at £4.42.
Bolland said customers were responding well to the company's refocus on quality and style. He added: "Sales of M&S collection in womenswear, which was relaunched last autumn, were notably up on last year. Our new spring/summer collection has been well received, with customers noticing the improving style credentials." M&S said profit margins had come under pressure in the fourth quarter as it was forced to cut prices to clear unsold stock, blaming disruption in the market caused by February's floods as well as switching on its new website.
Maureen Hinton, a retail analyst at the City firm Conlumino, tweeted: "M&S showing signs of improvement at last with clothing up slightly +1.3% and womenswear in particular." In May, M&S is expected to report its third consecutive year of falling profits. Analysts are forecasting it will have made £615-620m, which for the first time would be lower than arch-rival Next. M&S made profits of £1bn in 2008.
Recent data from Kantar showed that M&S has struggled to rebuild its popularity with its core 25-55 age group and the over-55s, but has made some gains among 12- to 34-year-olds. Clive Black, an analyst at City broker Shore Capital, said there was a "fog" hanging over the direction in which the company's profit margins were headed.
Bryan Roberts, of Kantar Retail EMEA, said about the latest M&S figures: "Clearly some positive news on the clothing front ... but we remain concerned that the retailer continues to cede market share to more nimble competitors. The news on lower margins for general merchandise reflects M&S' heavy discounting, which suggests there is still work to do in creating compelling ranges." "There was a gross margin deterioration in the quarter and the question is, does that continue into the new year," he said. "They wanted to defer questions to the prelims and investors see scope for some disappointment and uncertainty."
Cantor Fitzgerald analyst Freddie George was also cautious. "We continue to believe it will take a number of seasons before the existing team is able to manifest a marked improvement in performance in womenswear." Like-for-like sales at the retailer's food arm were flat, resulting in an overall UK like-for-like sales decline of 0.2% for the 13 weeks to 29 March.
Group sales climbed 1.9% in the last three months, with like-for-like food sales edging up 0.1%, a solid performance in light of the later timing of Easter. Online sales rose strongly, by 12.5%. Overall UK sales slipped 0.2% on a like-for-like basis. The quarter was the last in Bolland's three-year plan to reinvent the retailer for the 21st century. A disappointing performance in the domestic market during the life of the plan meant he missed even a lowered target of hitting sales of £10.8-11.5bn in the 2013-14 financial year. Analysts are forecasting turnover of about £10.3bn.
Due to heavy discounting across the clothing market, M&S expects the full-year UK gross margin to be down by about 20 basis points. It will report its full-year results on 20 May, which are expected to confirm that it has been overtaken by smaller rival Next in terms of annual profits for the first time this year. Bolland is said to have secured a year's grace from investors thanks to the strong performance of the M&S food business and well received plans to expand overseas.
M&S has embarked on a new overseas push, with plans to open 250 new stores around the world – following its humiliating exit from continental Europe in 2001. By contrast with its general merchandise division, M&S's food business, which contributes more than half of group sales but less profit, was reporting its 18th quarter of growth in a row.
"The numbers are nothing sparkling, but they're a little bit better than people had feared," said a fund manager at one of M&S's top 10 shareholders. "They've been in a real investment phase ... It just needs some time for that to bed in now."
The jury is still out on the new clothing team Bolland set up in July 2012. Its ranges have received generally positive reviews in the fashion press, but that has not translated into sales.
Sanford Bernstein analyst Jamie Merriman said British women still found M&S too frumpy and expensive, with a recent focus group of women aged 50 to 70 eliciting comments such as "My mother is 89. She wouldn't even look at M&S".
"We see nothing in these results to fundamentally change our view on M&S," said Merriman. "While M&S have hinted at better performance in womenswear, it is difficult to see how much of this has been driven by improved sentiment and how much by promotion. Our conversations with M&S customers suggested they had not fundamentally changed their opinion … and the gross margin cuts are in keeping with customer feedback that many, particularly the core 55-plus demographic, wait for promotions before buying at M&S."
Analysts want to know what Bolland plans to do next to get profits back on track, but the former Morrisons boss batted away those questions until the annual results presentation in May.
Last week he hinted at a big overseas push, with plans to open 250 stores around the world.
Bolland's turnaround has resulted in £2.3bn being pumped into modernising stores and operations – including the recent relaunch of its website – as the 130-year-old retailer attempts to find its place in a world where shoppers are increasingly likely to buy clothes on their mobile phone or tablet.