M&S Quarterly Sales Dip in Setback to Rowe's Turnaround PlanBy
Clothing & home sales show no improvement, food disappoints
‘Little evidence of a turnaround,’ Berenberg analyst says
Marks & Spencer Group Plc reported a fresh drop in quarterly clothing revenue and missed estimates for food sales, dealing a blow to Chief Executive Officer Steve Rowe as he seeks to revive the U.K. retail bellwether.
Same-store sales in the clothing and home division fell 1.2 percent in the 13 weeks ended July 1, London-based M&S said Tuesday, having slumped by almost 9 percent in the comparable period a year ago. The median analyst estimate was for a decline of 1 percent.
The lackluster performance adds to evidence that U.K. consumers are tightening their purse strings amid a squeeze on disposable incomes that’s affected sales at DFS Furniture Plc and Debenhams Plc. The drop in clothing sales marks the second consecutive quarter that M&S has failed to meet low expectations, and raises questions over whether Rowe’s plan to close 30 U.K. stores will be drastic enough in the face of a long-term sales decline.
The report shows that the CEO’s restructuring “could be a reasonably long and arduous one from a sales perspective,” Darren Shirley, an analyst at Shore Capital, said in a note.
The shares dropped 1.2 percent to 334.8 pence at 8:32 a.m. in London, extending a near 6 percent decline in the month leading up to the announcement.
While clothing sales continue to fall, the pace of decline did at least slow from the previous quarter’s 5.9 percent same-store drop, helped partly by the later timing of Easter. Encouragingly, sales of apparel at full price rose about 7 percent as the retailer stuck to a strategy of reducing the number of promotions and avoided a clearance sale.
Of more concern to analysts was the food division, M&S’s main growth engine of recent years. Here, same-store sales fell 0.1 percent, missing analyst estimates for a gain of 0.6 percent. Rowe said a program to open about 250 new Simply Food outlets by 2020 is taking some sales away from nearby shops.
“We didn’t expect a negative showing on the food side, especially given that external conditions should have been favorable,” Peel Hunt analyst Jonathan Pritchard said in a note.
The retailer’s update comes on the same day as a report from Barclaycard showing U.K. consumer spending growth slowed to 2.5 percent in June. About 46 percent of those surveyed said they are “feeling the squeeze” from inflation.
“Broadly I would describe the consumer as volatile,” Rowe said on a call with reporters. “They are very much shopping for now and they are cautious with their spend.”