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Bolland still looking for answers

Women’s clothing remains troublesome for M&S

Marc BollandMarks & Spencer’s troublesome clothing range continued to be a drag on overall performance, raising more questions about its strategy under chief executive Marc Bolland.

Like for like UK sales of general merchandise, which includes the clothing division, were down by 1.2% over the half year while food rose slightly by 0.2%. Total like-for-like sales in UK stores were down 0.4%.

Significantly, the company put an emphasis on an improved gross margin in its GM business, which some analysts interpreted as a way of diverting attention from the fall in sales.

The company said the improved margin – the difference between what it pays suppliers and what it charges at the tills – was partly because of a decision not to discount prices. Analysts suggested it may also have turned the screw on suppliers or sourced from cheaper ones. 

UK underlying profits rose 14.6% to £306.2m and group underlying profit was up 6.1% to £284m following a 51.9% fall in profits from overseas stores. This led to a 22.7% fall in group pre-tax profit from £216m to £216m.

The dividend is up 6.3% to 6.8p.

Mr Bolland said: “We delivered good underlying profit growth in the first half and made strong progress against our key priorities. Our food business again outperformed the market by over 3% points as our focus on quality and innovation continues to set us apart.

“In general merchandise we decided to improve profitability by focusing on gross margin, delivering another significant increase, which in part resulted in slightly lower sales.  As a consequence of good performance and strong cash generation we have decided to increase our dividend.?

First half performance summary

The food business delivered another strong performance with total sales up 3.3% and like for like sales up 0.2%. The new store rollout programme remains on track with sales performance ahead of expectations.

General Merchandise gross margin was up 285bps, ahead of previous guidance of up 150 to 200bps. Unseasonal conditions, together with the decision to focus on full price sales and discount less in the second quarter, impacted performance, with sales 0.4% lower, or 1.2% lower on a like-for-like basis.

M&S.com sales were up 34.2%.

UK operating costs were up 2.2% in line with expectations and full year guidance remains unchanged at +4%. Overall, UK operating profit was up 14.6% to £306.2m.

International sales were down 0.9%1 to £506.6m with operating profit down to £24.7m. Performance was significantly impacted by the adverse movement in the euro exchange rate, while the challenging macro-economic conditions, particularly in the Middle East, continued to affect the performance of the franchise business.

Group underlying profit before tax was up 6.1% to £284m. Non-underlying adjustments to profit were £68m net charge (last year £11.8m net credit). Statutory profit before tax was £216m (down 22.7%).

The interim dividend is raised by 6.3% to 6.8p per share.

Looking ahead

The company said that despite some improvement in consumer confidence, market conditions continue to be challenging in both the UK and the International markets.

“Our short term priorities remain the same: Food sales growth, GM gross margin improvement, improved GM performance and strong cash generation.”

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