Marks & Spencer Sales Probably Won’t Meet Bolland’s Reduced Goal

Almost two years after cutting his projection of long-term sales growth at Marks & Spencer Group Plc, Chief Executive Officer Marc Bolland will unveil figures next week indicating even that was too optimistic.

Bolland, whose 2.3 billion-pound ($3.8 billion) investment to improve stores and reinvent the online business has yet to translate into more customers, will probably report an 11th straight quarter of falling clothing sales April 10.

“They have spent all this money and after three years they are still losing share in clothing and the outlook is not particularly bright either,” Jamie Merriman, an analyst at Sanford C. Bernstein in London, said by phone.

Six months after joining in 2010, Bolland set a goal for sales of as much as 12.5 billion pounds in the year through March 2014. Less than two years later, he set a reduced range of 10.8 billion pounds to 11.5 billion pounds as cash-strapped shoppers deserted the retailer’s frocks and turned instead to budget competitors such as Primark. With the year having just ended, analysts expect sales of only 10.3 billion pounds, according to the average of 22 estimates compiled by Bloomberg. M&S is scheduled to release full results for the year on May 20.

Bolland this week trumpeted plans to open 250 new stores internationally, including food outlets in France and the addition of a local partner in China. Observers are keener to learn how he will fix a domestic business that so far is showing little response to efforts to revive it, most recently with a new online platform and revamped fashion collections.

Weaker Margins

“Only small steps forward are being witnessed at the check-outs, with share gains and positive sales momentum still proving elusive,” Shore Capital analysts Clive Black and Darren Shirley, said in a note to investors.

Same-store sales of general merchandise -- mainly clothing -- declined 1 percent in the fourth quarter, according to the median estimate of 13 analysts compiled by Bloomberg. Profitability also probably shrank due to increased discounting. The U.K. gross margin narrowed by about 8 basis points in the quarter, the median of nine estimates shows.

Citing Kantar research that’s not publicly available, Bernstein said M&S was the only major U.K. clothing retailer that failed to increase sales in the six months to mid-February.

The retailer’s most important customers in its home market, women aged 50 and 70, still describe M&S clothes as being too expensive and frumpy, Merriman said.

M&S products cost, on average, 20 percent more than the rest of the market, according to the Kantar data.

Returning Cash

While efforts to improve stores and fashion collections are working, the implementation is too slow, according to Maureen Hinton, director of global retail at researcher Conlumino.

“I don’t understand why it is taking so long and that is one of the questions investors will be asking,” Hinton said by phone. “There is a lot of inconsistency in the look of the stores across the country.”

With clothing showing little improvement, Bolland now has to contend with a more difficult grocery market, having been able to rely on food for growth for most of his time in charge. Same-store food sales in the U.K. were probably unchanged in the fourth quarter, according to the median of 13 estimates.

“The trading statement is not going to be very exciting as far as sales trends go,” said Richard Marwood, who helps oversee more than $700 billion in assets at Axa Investment Managers including Marks & Spencer shares.

Reduced Investment

To prevent investors losing patience, Bolland needs to provide a means of returning cash, according to Marwood.

The retailer said in November that this is the final year of “elevated capital investment in the business” and the CEO, who reaches his fourth anniversary in May, on Jan. 9 promised to provide more clarity at the May 20 results announcement on a pledge to consider returning more cash to shareholders.

M&S’s biggest U.K. competitor Next Plc has handed back about 30 percent more to shareholders since 2010 in the form of buybacks and dividends. That’s helped the stock more than triple in a period when M&S shares have gained 17 percent and the company has only paid out dividends.

“They’ve got to change the story away from an investment story to a cash-flow story,” Marwood said.

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