M&S profits rise but clothing sales hit by weather

M&S said a focus on margins dented clothing sales. Picture: David Cheskin/PA Wire

M&S said like-for-like sales in its general merchandise arm, dominated by clothing, fell 1.9 per cent in its second quarter. That followed a smaller fall of 0.4 per cent in the previous three months, with group chief executive Marc Bolland blaming cooler summer weather.

The latest figures come after what some analysts now fear was the “false dawn” of the turnaround earlier in 2015, when M&S saw a 0.7 per cent quarterly rise in general merchandise sales following more than three years of sales falls.

Despite the new sales setback, Bolland’s decision not to join in widespread high street discounting helped boost underlying pre-tax profits by a better-than-expected 6 per cent to £284 million in the six months to 26 September.

M&S was also helped by a 0.2 per cent rise in same-floorspace sales at its food arm in Q2.

The dividend is being hoisted 6.3 per cent to 6.8p, and the shares rose 4 per cent before closing up 2.8 per cent at 535p.

However, headline pre-tax profits, including one-off items, fell 22.7 per cent to £216m. Bolland declined to say how badly womenswear had been affected, only noting that it was in line with the overall sales fall.

The group said second-quarter high street trading was competitive as many rivals slashed prices to shift stock amid unseasonally cool summer weather.

But Bolland said: “We took the decision to focus on profitability and full-price sales.”

Analysts also said underlying earnings improvement had been helped by M&S cutting sourcing costs from its suppliers in the general merchandise business.

The overall sales figures were helped by strong 34 per cent growth over the six‑month period in online sales – the comparison flattered by a troubled M&S website relaunch last year.

Meanwhile, the group’s overseas revenues were hobbled by the strength of sterling, down 2.4 per cent in Q2. The latest rise in underlying earnings at the retailer follow its first rise in annual earnings for four years last May.

Bolland, who became chief executive at M&S more than five years ago, declined to say how long he planned to stay but confirmed he would be presenting the full-year results next spring.

Broker Shore Capital said the latest general merchandise sales fall was disappointing, but that the group was “running the business effectively given trading conditions”.