Marks & Spencer Group Plc (MKS) reported the smallest decline in general-merchandise sales in more than two years, signaling that a new women’s clothing collection may be helping the U.K.’s largest clothing retailer regain shoppers.
Sales at stores open at least a year fell 1.3 percent in the quarter ended Sept. 28, the London-based company said in a statement today. That beat the median estimate of 17 analysts for a 1.5 percent drop. M&S also reported an 8.9 percent slide in first-half underlying pretax profit, missing estimates, as one-time costs for introducing the new range weighed on margins.
The fall-winter collection, including designs such as 199-pound ($318) body-hugging leather dresses, “has been well received by customers, and we have seen some early signs of improvement,” Chief Executive Officer Marc Bolland said.
The CEO is counting on the revamped range to reverse nine straight quarters of declining same-store sales in general merchandise as shoppers defect to rivals such as the budget Primark chain. Primark’s profit rose 44 percent as sales gained 22 percent, owner Associated British Foods Plc (ABF) said today.
“There just seems to be a sense of relief that on the clothing front at least it seems to be going in the right direction,” said Bryan Roberts, an analyst at Kantar Retail in London. “They are of course not out of the woods, but it’s an improvement and they also have Christmas to look forward to.”
Second-quarter same-store sales in the retailer’s food division rose 3.2 percent, M&S also said, slightly stronger than the 3 percent median estimate of 17 analysts.
M&S said today it is targeting a “steady improvement” in performance as customers notice changes to the fashion offer, store interiors and a new advertising campaign.
The revamped fall-winter clothing collection arrived in M&S stores in early September, backed by an ad campaign featuring “Britain’s Leading Ladies.” A subsequent campaign was led by Academy Award-winning actress Helen Mirren and Grace Coddington, the creative director of American Vogue.
The company increased the stock of its advertised lines by 50 percent compared with any other advertised lines before, “and over the six weeks we sold through 80 percent,” Bolland told journalists on a conference call.
Still, the range is “an evolution rather than a revolution,” according to Sanford C. Bernstein analyst Jamie Merriman, who cut the stock to underperform on Oct. 8. “While M&S’s core customers, women aged 50 to 70, like the product, they are price sensitive and did not see enough change in the product to cause them to increase spend.”
M&S said it’s “cautious” on the outlook for the rest of the year given continued pressure on disposable incomes.
“While consumer confidence appears to be improving, there is little evidence as yet of this translating to increased spending in the retail sector,” the company said. “Our overall expectations for the full year remain unchanged.”
First-half underlying pretax profit fell to 261.6 million pounds, compared with the 273 million-pound average estimate of 16 analysts in a Bloomberg News survey.
Gross margin in the U.K. general-merchandise unit narrowed by 1 percentage point, which was “somewhat higher than planned,” M&S said, citing the introduction of the new clothing range and the revised timing of the mid-season clearance event. “We’re now expecting the margin to be up in the second half in GM,” Chief Financial Officer Alan Stewart told reporters.
Stronger clothing sales may also not be far off, said Richard Black, who helps manage 400 billion pounds at Legal & General, the biggest manager of U.K. pension assets, who holds Marks & Spencer stock and says he’s a buyer.
“It looks increasingly likely that they can turn the corner in the next quarter,” Black said. “They had a lot of investments in logistics, systems, distribution, that’s coming through, plus they had such a tough Christmas last year.”
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