Warm weather to hit Marks & Spencer and Next sales
THE warmest December in nearly 100 years is set to dent the festive trading performances of Marks & Spencer and Next when the clothing rivals unveil their latest numbers this week.
However, both retailing heavyweights are thought to have stuck to their guns by avoiding the most ferocious of the high street price promotions in the run-up to Christmas in a bid to protect profit margins even at the expense of headline sales.
Next, under Lord Wolfson, has traditionally only started its cut-price sales after Christmas in order to protect full-price revenues, while M&S chief Marc Bolland has signalled a policy in the past couple of years of cutting back on discounting.
That helped M&S boost underlying interim pre-tax profits 6 per cent to £284 million in November. In May the group, regarded as a bellwether of the high street even though it has been overtaken by Next in terms of profitability, reported its first annual profits increase in four years.
For the year to 28 March, M&S posted a profit up 6 per cent to £661.2m, beating City expectations and easing some of the pressure on Bolland, who took the helm in 2010 in succession to Sir Stuart Rose.
Analysts at Jefferies said: “M&S has generally maintained the view it is better to miss sales and protect margin than slip back into unplanned promotions.” This year the City expects the retailer to boost annual pre-tax profits by 3.6 per cent to £685m.
M&S is not expected to see an improvement at its embattled clothing division when it reports Christmas trading on Thursday. The City expects third-quarter like-for-like sales at its general merchandise arm, which is dominated by women’s clothing, to fall by about 2 per cent, following a 1.9 per cent drop in the previous three months.
Clothing retailers have been hit by what is set to be the warmest December in a century, while Black Friday sales in November have led some high street chains, such as H&M, Gap and Jack Wills, to begin their Christmas sales early.
M&S is expected to turn in another resilient performance in its food division, with flat like-for-like sales, although this is a drop on sales up 0.2 per cent over the previous three months.
It comes in the context of the continuing supermarket price wars, as major grocers battle discounters such as Aldi and Lidl, which has led to more than a year of falling prices.
Bolland said at the firm’s July annual meeting at London’s Wembley Stadium that he would continue to reduce promotions and implement better product sourcing to bolster margins at its general merchandise division.
Next is also expected to have seen its sales hit by the extremely mild weather in the Christmas run-up when it posts its festive trading update on Tuesday.
Analysts at Jefferies have cut their fourth-quarter sales growth estimates for the group to 4 per cent compared to a year ago from earlier estimates of 7.6 per cent, although they pointed to the group’s resilience to difficult trading conditions down the years.
Jefferies said: “Next typically fares better in this regard and has navigated the seemingly constant bouts of highly unseasonal weather over the past five years better than most.”
In October the group edged up its full-year profits guidance to between £810m and £845m, from an earlier range of between £805m and £845m.
The firm said although it enjoyed a “particularly strong” September, it continued to see volatile consumer demand throughout its third-quarter period.