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Analyst warns outlook could be 'terminal'

Rowe upbeat despite 8.9% slump in M&S clothing

M&S labelNew Marks & Spencer boss Steve Rowe was faced with a baptism of fire as clothing sales slumped during his first quarter in charge.

Sales were down 8.9% on a like-for-like basis over the 13 weeks to 2 July, although Mr Rowe said the company had fully expected this to happen as a result of actions taken in May to cut price promotions.

He said there were early signs of improvement and overall group sales were up, although even the food division saw a 0.9% fall in like-for-like sales.

The figures are worse than analysts’ forecasts of a 5% to 8% drop for clothing sales.

But Mr Rowe said: “A key part of our recovery plan for Clothing & Home is lowering prices and reducing promotions.

“As a result, we ran fewer price promotions while continuing to lower prices to deliver real value to our customers, and moved the summer sale to July. We knew our actions would reduce total sales but we are seeing some encouraging early signs.

“Our Food business continues to strongly outperform a deflationary market, with LFL sales slightly down when adjusted for Easter timing.           

“As highlighted in May, consumer confidence weakened in the run up to the EU referendum. While it is too early to quantify the implications of Brexit, we are confident that our strategic priorities and the actions we are taking remain the right ones to deliver results for our customers and our business.” 

Total UK sales were down 4.3% while group sales were up 1.3% in the 13 weeks to 2 July.

Food sales rose by 4.0% with LFL sales down 0.9% of which 0.5% was due to Easter timing.

“We strongly outperformed the food market and continue to leverage our volume growth to reinvest in price. New Simply Food stores continue to perform ahead of our expectations,” said Mr Rowe.

Clothing & Home sales were down by 8.3% with LFL sales down by 8.9% in a weak market. 

“As planned, the summer sale began on 5 July, two weeks later than last year. We continued to reduce the number of promotional events during the quarter, including just one ‘cyber day’ compared with six last year.  We have repriced c.1,000 lines since January and are pleased with early results.  For lines repriced in Q4 we have seen strong sales growth.”

International sales were up 0.7% at constant currency and rose 6.1% on a reported basis.

“Full year guidance remains unchanged.  We continue to manage the business for the challenging market environment.  We will update the market on strategy at our Interim results in November.”

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Daily Business Comment: M&S needs a new strategy for selling women’s clothes

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John Ibbotson, director of the retail consultancy Retail Vision, was scathing about the results and warned that the situation for M&S could be “terminal”. 

He said: “Just when you thought things couldn’t get worse for M&S, they did, and then some.

“The numbers may have been exaggerated by a washed-out June, pre-Referendum nerves and moving the sales to July but even then they make for grim reading.

“Fashion is on the canvas and even food has delivered a negative like-for-like. When that happens the alarm bells really do start to ring.

“Despite his best intentions, Rowe has not been able to stop the rot. Post-Referendum caution among consumers, if it materialises, will only make things worse.

“Today’s younger shoppers simply do not have the emotional bond with M&S that older people have.

“As a result, they’re shopping elsewhere, whether with Next, New Look, Primark and other affordable luxury brands.

“As hard as it is to say, the problems at M&S are starting to look terminal.”

Russ Mould, investment director of AJ Bell, said:Investors’ hopes for a long-awaited upturn in Marks & Spencer’s clothing business remains an aspiration with like-for-like sales down 8.9% in the first quarter as consumer confidence weakened in the run-up to the EU referendum.

“The group has become increasingly reliant on its food sales but these were 0.9% lower on a like-for-like basis, although they continued to outperform a deflationary market.”

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*First quarter sales in the current year are from 3 April 2016 to 2 July 2016 and are compared with 29 March 2015 to 27 June 2015, owing to last year’s 53 week financial year.

 

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