Marks & Spencer sales continue to fall

Chief executive Marc Bolland says there is little evidence of improved consumer confidence boosting high street spending

Marks & Spencer has revealed a 9.1% fall in half-year profits as underlying sales of clothing and homewares slipped back for the ninth consecutive quarter.

The 1.3% drop in underlying general merchandise sales – mainly clothing – in the six months to September looked particularly poor when set against a roaring performance from the fast-fashion chain Primark, which revealed a 3-4% uplift in underlying sales for the same period. Primark is now snapping at M&S's heels with an expected £5bn in clothing sales in 2014: close to, if not above, the projected clothing turnover for its older rival this year.

A 1% fall in margins on sales of general merchandise at M&S, as well as higher costs because of investment in overseas stores, new IT systems and distribution centres counteracted a strong performance from M&S's food business and online store. While total sales rose to £4.9bn in the first half, up 4% on the same period a year before, pre-tax profit fell to £261.6m from £287.3m on an underlying basis.Meanwhile, profits from international stores also fell back as M&S spent nearly £25m on the closure of four stores in Ireland, where trading has been poor, and invested a similar amount in opening two new stores in France.

But shares in the retailer rose 4.5% to 509p, making it the biggest riser in the FTSE 100, as investors clung on to slight signs of improvement, led by promising early signs for M&S's all-important autumn/winter clothing collection.

Chief executive Marc Bolland promised that M&S would meet profit expectations for the year and that the company was "well set up for the key Christmas trading period with more innovation and choice than ever before."

The Dutchman insisted that M&S's latest clothing ranges, produced under a new team led by head of general merchandise John Dixon and former Debenhams boss Belinda Earl, had sold more items at full price. Bolland said 80% of the product items from its leading ladies' range had sold out within 6 weeks. He blamed the fall in clothing and homewares profit margins on moving the autumn sale period into the first half of the financial year and the need for heavier discounting in a tough market. Bolland added, however, that recent figures indicated that M&S had stopped losing market share.

Bolland admitted that sales might have been better if M&S had stocked more of its most sought after fashions, such as a pink coat, which sold out quickly. He said M&S had bought 40% more of the 72 general merchandise items featured in its Christmas ad campaign to stop the problem recurring but he refused to say when underlying general merchandise sales might return to growth.

He said: "What we've seen is a gradual improvement and what we are looking for is a gradual improvement, step by step." He said consumer confidence was improving, but there was little evidence, as yet, of this translating to increased spending in the retail sector so he was cautious about trading in the run up to ChristmasHe added: "Most important is that we are choosing the right direction and that is quality and style," he said.

Shareholders said Bolland had a lot of ground to make up in the second half of the financial year and still had some work to do to prove that general merchandise sales performance had turned around. But they backed his strategy and were optimistic that M&S would see an uplift in clothing sales this Christmas.

Richard Black at Legal & General said: "There are signs that things are getting better. Some people thought the company might miss its profit forecasts but the company has done what it promised. It appears they are no longer losing market share and if general merchandise were to turn a corner it would lead to a big switch in sentiment on the stock."

Richard Marwood, a fund manager at AXA Investment Management, said that shareholders were giving Bolland "the benefit of the doubt" on clothing perfomance. "We are watching with interest. Six months ago Bolland was definitely under a lot of pressure. The better view of the new clothing collection has given him breathing space. We were never going to see financial evidence of that improvement today but people will be looking more keenly in January for more positive signs," he said.

The new ranges, which were only in place for a few weeks of the last trading period, will get their real test in the critical Christmas quarter. Bolland's new store layout, with specific areas for coats, dresses and casual clothing, will be in all stores by March.

Article Source : http://www.guardian.co.uk
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