Marks & Spencer Clothing Sales Drop as Discounting Fails

Photographer: Chris Ratcliffe/Bloomberg

Pedestrians pass a Marks & Spencer Group Plc (M&S) store in London. Close

Pedestrians pass a Marks & Spencer Group Plc (M&S) store in London.

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Photographer: Chris Ratcliffe/Bloomberg

Pedestrians pass a Marks & Spencer Group Plc (M&S) store in London.

Marks & Spencer Group Plc (MKS) reported a 10th straight quarter of falling clothing sales amid discounting over Christmas and after an unseasonal October held back sales of warmer-weather clothing.

Non-food sales at stores open at least a year fell 2.1 percent in the 13 weeks ended Dec. 28, the London-based company said in a statement today. That’s worse than the median estimate for unchanged sales in a Bloomberg News survey of 19 analysts. Food sales rose 1.6 percent on that basis, less than the 2 percent anticipated by the analysts surveyed.

Promotional activity for general merchandise means the U.K. gross margin for the full year will be broadly unchanged from a year earlier, Marks & Spencer said. The company slashed prices by as much as 50 percent on some items ahead of the Christmas holiday, which helped boost general merchandise sales 0.5 percent in the run-up to the event. Still, it failed to match growth reported by clothing competitors Next Plc, John Lewis and House of Fraser.

“This has left everyone wondering when the big turnaround is going to materialize,” said Bryan Roberts, an analyst at Kantar Retail. “There was a lot of fanfare over the autumn/winter range which obviously hasn’t resonated with the public. They obviously got nervous in the run-up to Christmas.” Heavy discounting “is the only reason the Christmas numbers are up.”

Photographer: Chris Ratcliffe/Bloomberg

A customer holds a shopping basket as she selects an item inside a Marks & Spencer Group Plc (M&S) food hall in the Westfield Stratford City retail complex in London. Close

A customer holds a shopping basket as she selects an item inside a Marks & Spencer... Read More

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Photographer: Chris Ratcliffe/Bloomberg

A customer holds a shopping basket as she selects an item inside a Marks & Spencer Group Plc (M&S) food hall in the Westfield Stratford City retail complex in London.

The company said it remains “cautious” on its outlook, given the economic environment.

Marks & Spencer fell 1.4 percent, to 438.9 pence at 8:02 a.m. in London. The shares gained 13 percent last year, trailing a 33 percent increase in the FTSE 350 General Retailers Index, the main benchmark for U.K. retail stocks.

Apparel Underperformance

The sales decline reflected Marks & Spencer’s continued underperformance in the U.K. apparel market. Sales grew 0.2 percent in the 24 weeks ended Nov. 24, Jamie Merriman, an analyst at Sanford C. Bernstein, wrote in a Dec. 30 note, citing data from researcher Kantar that is not publicly available. That compared with total market growth of 0.9 percent, she said.

Milder weather in the run-up to the holiday held back the retailer’s sales of full-priced merchandise, Cantor Fitzgerald analyst Freddie George said in a note to investors.

“The strategy of reducing the number of lines and backing the winners, which are highly geared to a cold weather environment, including cashmere and coats, appears to have backfired as the result of the milder-than expected weather over the past two months,” George wrote before the results were published today.

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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