Marks & Spencer rang up its best quarterly performance in clothing for three years today, but its shares took a hit as the market worried about the impact on its profit margins of heavy promotional activity.
Marc Bolland, who launched a turnaround of the group some months after he became chief executive in the summer of 2010, revealed that clothing sales at stores open at least a year rose 0.6 per cent in the latest quarter.
“Womenswear was encouraging, with a performance ahead of clothing (generally) and clear signs of improvement. We have always said we will improve step by step.”
A new clothing team at M&S led by John Dixon, the former head of food, had previously failed to deliver any pick-up in sales, including at Christmas, despite new women’s ranges receiving good coverage in the fashion media.
Clothing forms part of M&S’s general merchandise division, which includes homewares and shoes. Fourth-quarter sales in the division in the 13 weeks to 29 March fell 0.6 per cent, an eleventh consecutive quarterly decline.
The company said the fall partly reflected the impact of a late Easter this year on homeware sales, and compared with a Q3 decline of 2.1 per cent.
The market was disappointed that M&S cut its UK gross margin guidance for the 2013-14 financial year to a fall of 20 basis points from flat previously, reflecting price cuts in what the retailer called “a highly promotional market”.
Like-for-like sales in the company’s food business rose 0.1 per cent, an 18th quarter running of growth, comparing favourably with the big four of Tesco, Sainsbury, Morrisons and Asda, which all saw sales falls in the latest quarter.
Richard Hunter, head of equities at Hargreaves Lansdown, said: “Food remains a strong contributor to profits, and guidance on (its) profit margins has also been nudged higher.
“By contrast, general merchandising is still under pressure, with some improvement in clothing somewhat overshadowed by a reduction in gross margins due to promotional activity.”
Analysts at Morgan Stanley said in a note after the latest update: “Although hardly a stellar performance … it is the first positive figure (in the clothing part of) general merchandise in almost three years and does suggest that the new management team may be making progress in repositioning the offer.”
Analysts said they were also disappointed that Bolland said investors would have to wait until the full-year results are posted on 20 May for any strategic update. The City expectation is that M&S’s profits will have fallen for the third year running, with a consensus view of £621 million before any exceptional writedowns.
The group made a profit of £665m in the 2012-13 financial year.
M&S’s shares closed down 14p at 442p today.