Dec 22, 2015
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Marks & Spencer shares hit by Christmas trading concerns

Dec 22, 2015

Shares in British retailer Marks & Spencer continued their poor recent run on concerns about Christmas trading, with one broker forecasting a 5.5 percent slump in non-food underlying sales over the festive quarter.

The stock was down 1.6 percent at 440.4 pence at 1130 GMT and has now fallen 14.4 percent over the last month.

Nomura analyst Fraser Ramzan, who has a strong track record in forecasting M&S's performance, predicted a 5.5 percent decline in general merchandise sales at stores open more than a year over the 13 weeks to Dec. 26, M&S's fiscal third quarter.

That would compare with a second-quarter decline of 1.9 percent.

Ramzan also cut his pretax profit forecast for M&S's full 2015/16 financial year by 5 percent and his target price to 565 pence from 600 pence, maintaining his "neutral" recommendation.

His third-quarter sales forecast for general merchandise, which consists of clothing, footwear and homewares, is the most bearish published so far and takes into account recent market share data compiled by Kantar Worldpanel and an assessment of the impact of Britain's mild winter on fashion sales.

M&S has polled 11 analysts and their forecasts range from flat to down 5.5 percent, including the Nomura forecast, with a consensus of down 2 percent.

A spokeswoman for M&S declined to comment on the Nomura forecast.

M&S Chief Executive Marc Bolland's non-food strategy has been to focus on growing gross margins, the difference between the price it pays for goods and the price it sells them, mainly through better sourcing, rather than chase unprofitable sales.

With widespread pre-Christmas discounting across the industry the key issue for M&S is whether or not it has been able to keep to its planned promotional calendar and protect its profit margins.

In November M&S raised its general merchandise gross margin guidance for the full year to up 200 to 250 basis points after growing it by 285 basis points in the first half.

Critics of Bolland, CEO since 2010, argue increasing gross margins alone is not a source of long-term growth.

In food, M&S is outperforming Britain's grocery industry, benefiting from product innovation and a focus on providing for special occasions.

Analysts are forecasting third-quarter like-for-like sales in a range of down 1 percent to up 1 percent, with consensus at flat.

M&S food has reported 24 straight quarters of growth.


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