Marks & Spencer Says It's `Cautious' on Outlook After Sales Top Estimates

Marks & Spencer Group Plc, the U.K.’s largest clothing retailer, said it’s “cautious” about the outlook for consumer spending after reporting slowing first- quarter sales growth.

A proposed increase in U.K. value-added tax and other measures to curb the country’s budget deficit are likely to damp consumer confidence, the London-based company said today. Sales at U.K. stores open at least a year rose 3.6 percent in the period ended July 3, slower than the previous quarter’s 5.1 percent increase.

Chief Executive Officer Marc Bolland maintained guidance for “flat” gross margins this year on a conference call with journalists today. The retailer has been adding new food products such as grilled meat for summer barbecues and holiday clothing ranges to drive sales as Britons pare spending.

“A cautious outlook and no change to gross margin guidance” is weighing on the share price, Greg Lawless an analyst at Collins Stewart said. He recommends investors hold the stock.

Marks & Spencer fell as much as 3.7 percent in London trading. The shares were down 8.4 pence, or 2.4 percent, to 344.3 pence as of 9:15 a.m. local time as the U.K. benchmark FTSE 100 Index fell 1.1 percent. The Marks & Spencer price had advanced 7 percent in the three trading days prior to the statement.

Sales Growth

The sales growth beat the 2.3 percent median estimate of 18 analysts surveyed by Bloomberg. Same-store sales at the food division rose 1.5 percent, matching the median analyst estimate, driven by the addition of more than 500 new products such as gluten-free bakery goods, Director John Dixon said. Revenue on the same basis gained 6 percent at the general merchandise division, more than the 3.5 percent median estimate.

M&S increased market share by 0.5 percentage point in general merchandise and 0.1 percentage point in food, Bolland said.

“Momentum in general merchandise persisted and share gains are now more apparent given the weaker backdrop,” Matthew McEachran, an analyst at Singer Capital, said in a report.

Sales at M&S Direct, the company’s online unit, rose 49 percent. The new website allows customers to check whether items are in stock and place orders to collect in Marks & Spencer stores.

Remuneration Report

Chairman Stuart Rose dismissed suggestions of a shareholder rebellion at next week’s annual general meeting after yesterday’s criticism by the Pensions & Investment Research Consultants Ltd. PIRC called for the investors to oppose the remuneration report, which included “highly excessive” executive pay and concern over Bolland’s recruitment incentives.

“I can’t predict what they are going to vote, but I’m confident that all our resolutions will be passed adequately,” Rose said.

Bolland said the company is in the process of appointing a new finance director ahead of Ian Dyson’s move to Punch Taverns Plc at the end of August. He declined to comment on candidates.

The CEO, who is in his ninth week at the helm, said he has been meeting suppliers in China and Hong Kong, visiting stores and meeting customers ahead of his strategic review, expected at the interim results in November.

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net.

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