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Nov 05, 2014
As expected, UK retail giant Marks & Spencer battled through the latter stages of a difficult H1 with its clothing sales down yet again, hurt by a warm September. But the retailer did post a rise in underlying H1 profit for the first time in four years, benefiting from improved margins and a good performance in food, sending its shares up 6% to 429p in early Wednesday morning trade. Chief executive Marc Bolland focused on M&S delivering overall sales growth and increased profit despite a tough market, particularly in September.
“We are pleased with the progress we have made against our key priorities for the year: GM gross margin, improving womenswear…”, he said in a trading statement Wednesday.
In the six months to September 27 pre-tax profit, before one-off items, was £268m, ahead of analysts’ forecast of £252m.
Group sales inched up 1% to £4.9bn with underlying sales up 2.3%.
However, M&S said its core general merchandise (GM) sector was hit by that warm September to the tune of around 1.3% and sales fell 2.3% year-on-year in the period, as the retailer recorded its 13th consecutive quarter of declines. GM comps also fell 4%. Analysts had forecast a 3.7% comps dip.
Clothing sales dipped 1.6% and were down 2.2% on a comp store basis.
For Q2, GM and clothing sales were impacted by around 2.5% due to the unseasonal conditions in September.
But M&S stressed its womenswear performance had progressed with sales up 1.3% in the first five months of the year with an improving trend. There was also an improvement in full price sales “with increasingly positive customer feedback”.
“Our product has improved significantly,” it said in a trading statement. “Our focus on better quality and more style has resulted in more relevant and more inspiring ranges which have been well received by the fashion press. Our customers have also noticed, as evidenced by an increase in customers’ scores of product style and growth in full price sales.”
Meanwhile, GM gross margin was also up strongly at +150bps, ahead of full year guidance of +100bps, on “significant sourcing gains and lower promotional activity”.
Although online sales fell 6.3% in the period M&S noted an “improving trend” and said it was “on track for growth ahead of peak trading period”.
International sales for the period rose 1.2% as its owned business performed well, although franchises were impacted by both local currency and political issues, it noted.
Operating costs rose 2.7% but remained lower than full year guidance of +4%.
Updating its full year guidance, M&S said it expects GM gross margin to rise from +100bps to +150-+200bps, with the forecast for its operating cost increase lowered from 4% to 3.5%.
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