M&S lightens retail gloom as sales rise against expectations

Published on Wednesday 6 April 2011 15:59

STRONG fourth-quarter sales from Marks & Spencer gave a shot in the arm to a gloomy high street yesterday, but the retail bellwether also warned of a tough year ahead for consumers.

Shares in the group surged 6 per cent, making the stock the top Footsie riser, as the resilient performance contrasted with a flurry of recent profits warnings in the sector.

Chief executive Marc Bolland revealed that like-for-like UK sales rose 0.1 per cent in the 13 weeks to 2 April. That reflected a 3.4 per cent rise in food sales and a 3.9 per cent fall in general merchandise, the bulk of which is clothing. Most City analysts had been forecasting a fall.

Underlying UK sales were up 2.2 per cent, stripping out the first five days of the Christmas sale, which were not included this time but were in the comparative quarter the previous year.

Bolland said the fall in general merchandise sales was in line with his expectations, "given the extremely tough like-for-like comparatives of 9.1 per cent in this quarter last year and the recent challenging trading conditions". But, fuelling general retail sector caution, the M&S boss, who succeeded Sir Stuart Rose last year, said M&S was "not bullish at all" about the financial year to come. He said although trading had not "hit a wall or come off a cliff" following Chancellor George Osborne's recent tough Budget, "customer confidence is low, not great. In the next year, we feel customers will be in a more difficult situation, with less discretionary spending."

M&S's resilient performance mixed with Bolland's cautionary comments came after Argos-owner Home Retail, electricals group Dixons, Mothercare and HMV all issued profit warnings recently. However, Keith Bowman, an analyst with stockbroker Hargreaves Lansdown, said M&S's Q4 figures showed it was "still a force to be reckoned with".

Bowman said: "Against a backdrop of pressured consumer finances, M&S has exceeded expectations. The group's trusted brand, aided by an extensive marketing campaign, appears to have played to its strength."

Many consumers will be hit by national insurance and tax rises this month on top of the VAT rise to 20 per cent at the beginning of the year, while experts believe general inflation at 4 per cent will trigger interest rate rises in the near future. Bolland said that, despite cautious consumer sentiment, M&S promotions such as Mother's Day and Valentine's Day were successful.

"They (consumers] see so much negative news, they at least want to celebrate the things that are good," he said.

In footwear, sales of M&S's new so-called killer heels for women leapt 70 per cent.

The group's water-repellant clothes brand Stormwear saw sales climb 27 per cent after an advertising campaign fronted by former Liverpool and Spurs footballer Jamie Redknapp.

The company forecast gross profit margins would be flat to 25 basis points higher in 2011-12, as it cuts costs and improves purchasing and distribution to offset an expected 5 per cent rise in operating expenses. M&S's average selling prices for spring were up 6 per cent, reflecting the rise in VAT, an increase in commodity prices such as cotton and wheat, and some shoppers trading up in food.

Bolland, who joined M&S from supermarket giant Morrisons last May on a 15-million pay deal, put innovation at the heart of a strategy unveiled in November, which also includes revamping stores and expanding online and abroad.

Total UK sales rose 1 per cent, with food up 4.9 per cent and general merchandise down 3.9 per cent. M&S shares closed up 20.4p at 360.6p.