Marks & Spencer Sales Miss Estimates on Stock Shortages

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Visitors are seen outside the Marks & Spencer Group Plc store at the Westfield Stratford City mall in London. Close

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Photographer: Simon Dawson/Bloomberg

Visitors are seen outside the Marks & Spencer Group Plc store at the Westfield Stratford City mall in London.

Marks & Spencer Group Plc, (MKS) the U.K.’s largest clothing retailer, reported revenue that missed analysts’ estimates after running short of inventory in some of its best-selling women’s fashion ranges.

Sales of general merchandise at U.K. stores open at least a year fell 2.8 percent in the 13 weeks ended March 31, London- based Marks & Spencer said today in a statement, worse than the previous quarter’s 1.8 percent decline. The average estimate of 10 analysts was for an unchanged performance.

The retailer could have sold three times more than the 100,000 items of knitwear purchased by customers and nearly twice as many footwear “pumps,” Chief Executive Officer Marc Bolland said on a call with journalists. Growth in food sales also slowed in the quarter, while international revenue declined, hurt by weakening economies in Ireland and Greece.

“This is not a good update,” Caroline Gulliver, an analyst at Execution Noble in London, said in an e-mail. The “self-inflicted issues” were disappointing, she said. Gulliver has a “buy” recommendation on the stock.

Marks & Spencer fell as much as 3.9 percent in London trading and was down 2.8 percent at 357.5 pence as of 9:18 a.m., paring this year’s gain to 15 percent. Burberry Group Plc (BRBY), the U.K.’s largest luxury-goods company, declined as much as 4.9 percent after also reporting revenue that missed estimates.

Marks & Spencer’s inventory shortages are being addressed, Bolland said on the call. “It’s good learning, we need to be more encouraged to buy deeper into best-selling lines.”

New Concepts

The retailer also said today that tests of new concepts such as in-store delicatessens and more distinct branding for ranges such as the Limited Collection and Per Una will be introduced across the company at a cost of 500 million pounds ($794 million), 100 million pounds less than previous guidance, as it becomes more efficient at refitting stores.

Upgrading a Simply Food outlet can be completed in as little as a week, Chief Financial Officer Alan Stewart said.

The retailer has refitted 70 stores with new interiors and signage, and will complete the rest by mid-2013, Bolland said. Customer feedback had been positive, he said, though he declined to comment on the sales improvement at the trial outlets.

“The short-term trading outlook continues to be challenging,” the CEO said in the statement. Still, the company is confident of reporting full-year profit “in line” with its expectations after eeking out cost savings.

Food Sales

Same-store sales at the upscale food division rose 1 percent in the fourth quarter, the company said, worse than the prior quarter’s 3 percent gain. About 46 percent of the retailer’s sales are derived from food.

International revenue declined 2 percent, leaving group sales 0.8 percent ahead of the same period a year earlier.

In the U.K., customers are “stable positive,” Bolland said. Shoppers are planning their purchases and saving for the summer, for which they have “a little optimism,” he said.

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

To contact the editor responsible for this story: Paul Jarvis at pjarvis@bloomberg.net

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