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M&S hails womenswear progress as new website holds back sales

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[July 08, 2014]  By James Davey

LONDON (Reuters) - British retailer Marks & Spencer reported a small rise in sales of its flagship womenswear on Tuesday, saying it was a sign years of investment were starting to pay off despite a 12th consecutive quarterly drop in overall general merchandise sales.

The country's biggest clothing retailer, which also sells upmarket food, said first-quarter sales were held back by its transition to a new website, as previously flagged, and kept its full-year profit guidance.

It said sales of womenswear at stores open over a year were "slightly higher," without providing a figure. But some analysts said Chief Executive Marc Bolland, who will face shareholders at an annual meeting later on Tuesday, still had much to prove.

"It will still take a considerable amount of time for M&S to demonstrate that it can break the mould, grow its non-food offer, maintain market share and build earnings," said Shore Capital's Clive Black, who has a "hold" stance on M&S stock.

Bolland, CEO since 2010, has spent 2.3 billion pounds ($3.9 billion) over the past three years in a push to address decades of underinvestment, overseeing the redesign of products and stores and an overhaul of logistics to serve the new website. However, a new clothing team he set up in 2012 has failed to deliver a sustained increase in sales and, for the first time, M&S earned less in the year to the end of March than its faster-growing rival Next <NXT.L>.
 


The new website, launched in February, is a pillar of the intended transformation of the 130-year-old business into an international retailer reaching customers through stores, the internet, tablets and mobile devices.

Its "settling in" problems are likely to be among the criticisms Bolland will face over the firm's underperformance from elements of M&S's army of private shareholders, who own about 30 percent of the retailer's equity.

The CEO announced a shuffling of executive responsibilities last week, putting online boss Laura Wade-Gery in charge of UK retail - a move which sparked speculation the firm was planning for an eventual successor to Bolland.

Shares in M&S, down 6 percent over the last year, were 1.6 percent lower at 426.2 pence at 0935 GMT, valuing the business at about 7 billion pounds.

STEP BY STEP

M&S said like-for-like sales of non-food products, spanning clothing, footwear and homewares, fell 1.5 percent in the 13 weeks to June 28 - in line with analysts' forecasts of down 1-2 percent but worse than a decline of 0.6 percent in the fourth quarter of M&S's 2013-14 financial year.

"We have seen a continued improvement in clothing, although, as anticipated, the settling in of the new M&S.com site has had an impact on sales," said Bolland.

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The firm said M&S.com sales fell 8.1 percent, though there had recently been a gradual improvement in performance. It said it expected the site to return to growth ahead of the peak trading period of November and December.

Finance director Alan Stewart said the website and the firm's new e-commerce distribution centre at Castle Donington in central England were performing in line with internal expectations. He said 3.2 million customers had registered for the new site and it expected to get 6 million eventually.
 

M&S said that while like-for-like sales in womenswear were positive thanks to stronger full price sales, overall clothing like-for-like sales fell 0.6 percent, reversing a 0.6 percent rise in the fourth quarter. Total clothing sales did, however, edge up 0.1 percent.

Were actually very pleased ... Even at a higher level of full price and a lower level of promotional (activity) weve been able to grow at womenswear and in clothing, Bolland said.

"We believe that step-by-step we are on the right track," he said, adding "I'm really committed to what Im doing."

M&S's food business, which contributes more than half of group sales but less profit, is performing much better and delivered a 19th consecutive quarter of growth.

Like-for-like food sales rose 1.7 percent, against analysts' forecasts of up 1.5-2.5 percent and a fourth-quarter rise of 0.1 percent. The outcome was boosted by the fall of Easter in M&S's first quarter this year.

(Editing by Kate Holton and Mark Potter)

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