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Marks & Spencer Clothes Sales Drop as Gains Elude Bolland

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Marks & Spencer CEO Marc Bolland
Marc Bolland, chief executive officer of Marks & Spencer Group Plc. Photographer: Paul Thomas/Bloomberg

July 8 (Bloomberg) -- Marks & Spencer Group Plc, the U.K.’s largest clothing retailer, said apparel sales resumed their decline in the first quarter as customers’ unfamiliarity with a redesigned website led to a slump in online revenue.

Same-store sales of clothing fell 0.6 percent, the London-based retailer said today in a statement, reversing the previous quarter’s 0.6 percent growth. Online sales slid 8.1 percent.

Marks & Spencer has said that February’s introduction of a redesigned website will weigh on sales for six months as customers re-register for accounts and learn to navigate their way around it. The drop in online revenue is the latest setback for Chief Executive Officer Marc Bolland, who has presided over 12 consecutive declines in non-food sales.

“We deem this to be another disappointing update,” Clive Black, an analyst at Shore Capital, said in a note. The drop in dot-com sales “leaves a bitter taste for investors.”

Marks & Spencer shares fell in London, reversing an initial gain after the retailer said it is leaving financial guidance for the year unchanged. They were down 1.3 percent at 427.4 pence as of the close of trading.

Same-store sales of general merchandise, a division that mostly comprises apparel, fell 1.5 percent in the 13 weeks ended June 28, M&S said today. That compares with the median estimate of 17 analysts surveyed by Bloomberg News for a 1 percent drop.

Women’s Wear

Partly offsetting the decline in online sales, women’s wear returned to growth in the quarter, the company said. Same-store sales in the key category were “up slightly,” Bolland said on a conference call with reporters.

The growth in women’s wear is a sign that the company’s step-by-step approach “is working,” the CEO said. Sales of the Limited clothing collection were up 11 percent in the quarter.

“We have seen a continued improvement in clothing, although as anticipated the settling in of the new M&S.com site has had an impact on sales,” Bolland said in the statement.

Online sales should start rising again before the peak Christmas season, Bolland said.

On general merchandise “we are behind our plan and we need to move faster,” the CEO told investors at the company’s annual meeting at London’s Wembley Stadium today. Most criticism from shareholders centred on lack of availability of certain styles and sizes of women’s clothing in stores, as well as designs.

Growth in clothing sales remains elusive for Bolland, who has introduced two collections under a new team headed by former Jaeger CEO Belinda Earl, and invested 2.3 billion pounds ($3.9 billion) in revamped stores and the new online infrastructure.

Margin Objectives

Earl said today that the company is listening to customers and that 90 percent of dresses now have sleeves -- the lack of which had been the subject of disquiet at AGMs in recent years.

“Turning around a clothing business the size and complexity of Marks & Spencer is far from easy and it would be unfair to say that no progress has been made,” Neil Saunders, managing director at researcher Conlumino, said in an e-mail. “However, it is clear that the strategy is nowhere near as far advanced as it should be and greater effort -– not just time –- is now needed to complete the work that has been started.”

Marks & Spencer said it’s “on track” to meet its profit margin objectives for the year. The “focus is on margin this year,” Chief Financial Officer Alan Stewart said on the call, adding that the company has held fewer promotional events

The gross margin in the general-merchandise unit will widen by about 1 percentage point this year, particularly in the second half, M&S said in May. The margin in the food division will increase as much as 0.3 percentage point, it has forecast.

Same-store sales at the food unit advanced 1.7 percent in the first quarter, although adjusted for a later Easter growth was just 0.1 percent, M&S said.

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

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net Paul Jarvis, Robert Valpuesta

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