Marks & Spencer Posts Faster Sales Growth Than Anticipated

Marks & Spencer Group Plc, the U.K.’s largest clothing retailer, posted the fastest quarterly sales growth in almost two years as it offered discounts on apparel and shoppers treated themselves to specialty food at Easter.

Revenue at U.K. stores open at least a year rose 0.6 percent in the 13 weeks ended March 30, the London-based retailer said in a statement today. Food revenue climbed 4 percent, topping the 2.5 percent median estimate of 13 analysts surveyed by Bloomberg. General merchandise sales fell 3.8 percent, compared with an estimate of a 4 percent decline.

Chief Executive Officer Marc Bolland has created a new team to revamp clothing selection as he comes under increased pressure to revive general merchandise almost three years into his tenure. Promotional pressure in March forced M&S to offer more targeted discounts to keep up with rivals though the stock-to-sales ratio was unchanged as the new management were better at buying, the CEO told reporters on a call today.

M&S “beat the whisper number on general merchandise” of a decline of as much as 6 percent, said Charlie Muir-Sands, an analyst at Deutsche Bank AG in London. Still, he reduced his gross margin target on weak clothing sales and “increased promotional intensity.” He has a hold rating on the stock.

Offer Speculation

M&S shares rose as much as 5.4 percent in London trading, the most in over three weeks. The stock gained 3.2 percent at 9:13 a.m. local time to 396.2 pence, taking the advance to 3.6 percent this year. The stock surged on March 18 following speculation that the Qatar Investment Authority was considering an 8 billion-pound ($12.3 billion) offer for the company.

The retailer benefited from its avoidance of the horse-meat scandal that has engulfed larger rivals like Tesco Plc and its popularity as a destination retailer for special occasions like Easter, its biggest ever.

The company’s shareholders are “supportive of our strategy,” Chief Financial Officer Alan Stewart said on the call, and they recognize it will take time.

Bolland may have only a year to prove he can revive Britain’s biggest clothing retailer, investors and analysts told Bloomberg earlier this year. The CEO has pledged almost 1 billion pounds to invest in stores, products, the supply chain and a multichannel offer and said today he’s enjoying the job, despite pressure of M&A rumors and shareholder dissent.

Key Trends

“We can do better than this” in general merchandise, Bolland said. The company bought more items that responded to “key trends,” he added. Bolland is placing his faith in a new U.K. management team, led by former food chief John Dixon. Dixon replaced Kate Bostock as head of the general merchandise unit in October, while former Debenhams Plc CEO Belinda Earl was brought in as style director.

The retailer was forced to offer more discounts last month as the market had as much as 25 percent on offer, Bolland said. The executive declined to give guidance on gross margins, which M&S has previously said would be a much as 0.25 percentage point ahead of last year.

Credit Suisse analyst Simon Irwin reduced his margin forecast to a gain of 0.1 percentage point on increased promotions and “negative mix” to lower-margin food.

The company repeated that it is “cautious” about its outlook for the year ahead because it expects pressure on consumers’ disposable incomes to continue throughout 2013. Last year, the retailer lowered its sales targets to growth of 1.1 billion pounds to 1.7 billion pounds by fiscal 2014. That compared with a previous target for revenue to grow by as much as 2.5 billion pounds from fiscal 2011 as M&S expands internationally and bolsters its online offer.