Marks & Spencer Sees Tougher Times Ahead After Third-Quarter Sales Advance
Marks & Spencer Group Plc, the U.K.’s largest clothing retailer, said mounting pressure on consumer finances will make business more difficult this year after reporting sales growth in the holiday period.
An increase in value-added tax and the impact of government austerity measures are likely to constrain shopper spending, while rising commodity prices will also present a test, London- based Marks & Spencer said today in a statement.
The retailer said it remains “cautious” about the outlook as it reported a 2.8 percent gain in sales at U.K. stores open at least a year in the 13 weeks ended Jan. 1. Lost sales caused by snowy weather were offset by the inclusion in the figures of the first five days of the post-holiday clearance sale.
“The comments about future prospects might put a dampener on short-term growth expectations,” Matthew McEachran, an analyst at Singer Capital Markets Ltd., said in a note.
Marks & Spencer fell as much as 2.1 percent in London trading and was down 3.7 pence, or 1 percent, at 380.3 pence as of 11:40 a.m. The stock gained 5.3 percent last week as investors anticipated the retailer reporting strong sales.
Same-store sales of general merchandise, which includes clothing and home furnishings, increased 3.8 percent in the third quarter, the company said. Growth in food, which accounts for about half of sales, was 1.8 percent. The median estimate of 17 analysts surveyed by Bloomberg was for a 1.9 percent rise in same-store food sales and 3.2 percent for general merchandise.
December’s heavy snow in the U.K. cut reported food sales by about 1 percent, and general merchandise sales by 3 percent, Marks & Spencer said. That was offset by a “positive impact” of about 3 percent from the inclusion of post-Christmas sales.
The snow probably cost about 45 million pounds in lost sales, according to Singer’s McEachran. Marks didn’t comment on the overall sales impact. Competitor Next Plc said Jan. 5 that adverse weather cut revenue by 22 million pounds ($34 million).
Marks & Spencer’s total revenue in the quarter increased 4 percent, helped by a 25 percent increase in Web-based sales at its Direct unit, as more customers ordered goods online.
The results “are still well ahead of rivals like Next,” Nick Bubb, an analyst at Arden Partners, wrote in a note today. “Full-year profit forecasts will not move on this.”
Marks & Spencer said it experienced food price inflation of between 1 percent and 2 percent in the last quarter of 2010.
“External estimates are that it’s running at slightly higher than that at the moment,” Chief Financial Officer Alan Stewart said on a conference call.
Retailers are facing pressure from rising costs in 2011. William Morrison Supermarkets Plc said yesterday that it expects “some uptick” in food-price inflation as wheat, sugar and cocoa prices rise. Next predicted prices will rise 8 percent in the first and second quarters as the cost of cotton soars.
Marks & Spencer will aim to keep prices on some products “at the same level as last year” and expand its range.
The retailer will seek “better supply chain opportunities with suppliers” to offset inflation, Chief Executive Officer Marc Bolland said on the call.
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