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Marks and Spencer starts clothing division recovery but sales still dip

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Marks and Spencer Group PLC (LON:MKS) said full-year gross margins are expected to be towards the lower end of guidance as it posted flat like-for-like (LFL) sales for the third quarter.

Total UK LFL sales in the 13 weeks to 28 December were 0.2% higher than last year, while total sales were 0.6% lower at £2.7bn.

Food revenue rose 1.5% to £1.7bn with LFLs up 1.4%, while clothing & home came 3.7% lower at £1bn, down 1.7% LFL.

International sales were also lower, down 2.3% to £251 mln, with group sales totalling £3bn, down 0.7%.

While food kept the same momentum recorded in the first half, general merchandise showed “strong initial customer reception of autumn ranges”, the company said, with recovery in women's wear offset by under performance in menswear and gifting.

The division, which has been denting profits since the high street crisis prompting the retailer’s demotion from the FTSE 100 last year, was still hit by a “challenging trading environment” in the lead up to Christmas.

Online revenue for non-food did not meet expectations having risen only 1.5%, due to competitor discounting in December and lower furniture dispatches at the start of the quarter.

M&S added the value of stock was reduced into sale by 12% thanks to improved availability and fewer options.

“The changes we made earlier in the year in clothing have arrested the worst of the issues of the first six months and we are progressively building a much stronger team for the future,” chief executive Steve Rowe said in a release.

Need for new long-term solution

According to Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, squeezing price tags to save profits while keeping low gross margins cannot be a long-term solution.

While external competition for clothing & home is fierce, the question is whether some challenges are coming from "simply not having the right items on the shelves", she said in an email, considering there was a pickup in women's wear thanks to positive reaction to new Autumn ranges.

"The food business is singing from a different hymn sheet," she added.

"With the online offering set for a potential boost with the Ocado deal later this year, the food business could be ramping up for an exciting 2020.”

Shares dropped 10% to 196p on Thursday morning.

Source - Proactive Investor

Photo © N Chadwick (cc-by-sa/2.0)

About the author

Philip Scott

Head of Equities, Director

Philip has worked as a Private Client Stockbroker for nearly 20 years, commencing his career in Operations with Rensburg Sheppards (now part of Investec plc) before spending 9 years with Killik & Co advising on and directly managing portfolios. He joined SI Capital in 2006 to head up the Private Client Advisory desk.

Philip is a regular contributor to local media commenting on stock market dynamics and is a Chartered Member of the Chartered Institute for Securities & Investment (MCSI). His RDR qualification gained special recognitionfrom the CISI for achieving the highest combined pass mark in the country for the Investment Advice Diploma in 2012.

“At SI Capital I enjoy being part of a talented team who collectively share the same desire to provide excellence in service.  My focus is to ensure that each client receives effective and optimal management of their assets.”

Philip lives locally, is married with 2 daughters and is an avid sports fan (if now predominantly from the sidelines).  His other interests include music and film.

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