Apr 10, 2014
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M&S shows signs of improvement as clothing sales rise

Apr 10, 2014

London, UK - British retailer Marks & Spencer showed its turnaround programme may finally be gaining traction after its fourth quarter results recorded an improvement in the sales falls suffered by its main non-food division.

Despite the improving picture, the company did note that the gross margin for the British business in the full year would be down around 20 basis points, due to the heavy promotions it had to engage in to draw shoppers in.

The country's biggest clothing retailer, for so long synonymous with the British high street, said sales of clothing, footwear and homewares at stores open over a year fell 0.6 percent in the 13 weeks to March 29, its fiscal fourth quarter.

That compared with a third quarter decline of 2.1 percent which included the key Christmas period, and a fall of 3.8 percent in the same period last year. It was also towards the top of a range of forecasts of down 0.5 percent to 1.5 percent.

The group also broke out the results for its clothing division, which it has invested heavily in to regain ground on rivals such as Next which have grown strongly in recent years.

Clothing sales were up 0.6 percent on a like-for-like basis in the 13 weeks to March 29.

"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 at Morgan Stanley said.

M&S's food business, which contributes over half of group sales but less profit, is performing better, though even here growth slowed due to the timing of Easter.

Food sales on the same basis rose 0.1 percent versus analysts' forecasts in a range of flat to up 0.5 percent and a third quarter rise of 1.6 percent.

M&S's performance was held back by Easter not falling in its fourth quarter, as it did last year. Adjusting for the impact of later Easter timing, like-for-like food sales were up 1.8 percent M&S said.

"Clothing may have improved slightly in the latest quarter but this is due to heavy promotional activity, which will be eating away at M&S's profit margins," said James McGregor, director of retail consultants, Retail Remedy.

"Despite the slight improvement, as far as clothing is concerned M&S has lost the younger customer. We'd need to see the clothing improvement continue for another three to four quarters at least before we can even talk of a turnaround."

Marc Bolland, chief executive since 2010, is at the end of a three-year, 2.3 billion pounds plan to address decades of under-investment and transform M&S into an international, "multi-channel" retailer, connecting with customers through stores, the Internet and mobile devices.

The group has spent heavily on revamping its clothing operation, redesigning stores and overhauling logistics and IT to complement a new web platform that went live in February.

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