Marks & Spencer Tumbles After Holiday Sales Miss Estimates

Marks & Spencer Group Plc fell the most since 2010 in London trading as the U.K.’s largest clothing retailer reported quarterly sales that missed estimates, adding to pressure on Chief Executive Officer Marc Bolland.

The shares fell as much as 5.2 percent after the London-based company said U.K. same-store general merchandise revenue fell 3.8 percent in the 13 weeks ended Dec. 29. That compares with the median of nine estimates for a 1.5 percent drop. Marks & Spencer released the statement last night after a leak.

Almost three years into his tenure, Bolland is struggling to revive revenue. The CEO opted out of the discount-driven market and offered fewer promotions over Christmas, protecting profitability though weighing on sales. Rivals including Debenhams Plc, which this week reported higher same-store sales, offered shoppers more money-off in a spending period described as “underwhelming” by the British Retail Consortium.

“M&S has had a dreadful Christmas,” Caroline Gulliver, an analyst at Espirito Santo, said by e-mail. “M&S has blamed the highly promotional market, whilst management chose to protect gross margin with fewer, more targeted promotions.”

Marks & Spencer shares fell as much as 19.4 pence to 351.6 pence, the steepest intraday drop since May 7, 2010. They traded at 352.8 pence at 9:20 a.m. in London.

‘Not Satisfactory’

Clothing sales were “much worse than competitors, reflecting the strength of competition that M&S faces and the weakness of its ranges and in-store merchandising,” said Nick Bubb, an independent retail analyst in London.

John Lewis Partnership Plc said last week that sales at its U.K. department stores rose 15 percent over the Christmas season. Next Plc, the U.K.’s second-largest clothing retailer, said full-year profit will at least be at the higher end of its forecast after holiday sales beat estimates.

“In terms of profitability, we made a clear choice” not to chase sales at the expense of profit, Bolland said on a conference call last night. Still, he conceded that the performance in general merchandise was “not satisfactory.”

Marks & Spencer released the statement after Sky News reported that the company’s sales were worse than anticipated. Bolland said the retailer will look into the matter.

The CEO has refitted stores with browse-and-order points, new beauty ranges and more brand-specific marketing in an effort to improve performance. He’s also shaken up management, with former Debenhams CEO Belinda Earl joining last year as style director and general-merchandise chief Kate Bostock leaving.

’Right Thing’

“The market thought we would start to see something material now after all the changes at the company, but it is not the case,” Fabio Fazzari, an analyst at Equita SIM SpA, said in a phone interview. “This was the disappointment today.”

Disposable incomes will remain under pressure and the retailer is “cautious” on the outlook for 2013, Bolland said. The CEO has the backing of Marks & Spencer’s board, Finance Director Alan Stewart said on the call, saying protecting profitability was the right thing for the company to do.

Estimates of full-year profit may not fall much because of additional cost savings and “robust margins,” Bubb said.

Marks & Spencer maintained its guidance that gross margin growth will be at the top end of a range for it to expand as much as 0.25 percentage point. Costs will increase about 2 percent for the year, it said, compared with a previous forecast for growth at the lower end of a 3 percent to 5 percent range.