Lower prices and fewer promotions and clearance sales helped the FTSE 100 retailer boost its clothing and home revenue during the 26 weeks to 30 September 2017 and lift its gross margin 140 basis points.
Full price sales of its non-food items were up 5.3% over the period, following on from last quarter’s 7% full price sales growth.
Because of the “stronger than anticipated buying margin” in the first half, the firm said it now expects to boost gross margins in clothing and home by between 25 and 75 bps for the full year.
However, on a like-for-like basis, clothing and home sales were down -0.7% and the £1.8bn revenue generated was still broadly flat with the comparative period.
Worse still, M&S’s food division, ordinarily the retailer’s pillar of strength, saw its like-for-like sales fall 0.1%, despite delivering 4.4% higher revenue of £2.8bn on a constant currency basis.
The group’s total profit before tax and adjusted items was also down 5.3% from £231m to £219m, while revenue was up 2.6% to £5.1bn, beating expectations.
‘Not a pretty set of results’
Analysts have been split for some time on whether CEO Steve Rowe’s major efforts to simplify the business and resuscitate the firm’s clothing and home department have been working.
On the morning of its update, markets were equally indecisive, sending the British retailer’s share price down as much as 3% at one point and then back up again near its previous close of £3.27 per share.
While Laith Khalaf, senior analyst at Hargreaves Lansdown, admitted the higher gross margin of M&S’s non-food business was “pretty good going given the currency headwinds,” he concluded it was “not a pretty set of results for M&S, which has seen its turnaround plan undermined by changing consumer shopping habits and a weaker pound.”
“The structural problems that beset M&S have probably delayed its digital progress, after all it’s not so wise to pick up speed while you’re still bailing out the boat,” Khalaf continued. “Be that as it may, M&S and other traditional high street retailers are still catching up with changing shopping habits, rather than getting out in front of them.”
Also, with real wages around 0.5% lower than they were last year, M&S might struggle sales-wise during the all important Christmas season.
“For M&S it’s still early days in the turnaround plan, and it’s unfortunate that the retailer’s structural issues have been compounded by tough times in the industry as a whole,” he added.
“There won’t be any champagne accompanying the marmalade sandwiches at M&S HQ, it’s a quick brew, then back to work.”
Short-term boost to clothing and home
Helah Miah, investment research analyst at The Share Centre, called the retailer’s interim figures “an encouraging set of results,” considering the stronger performance of its beleaguered clothing and home division.
While the key issue for M&S is that “the group needs to make its clothing range attractive and fashionable again,” said Miah, he believes its decision to extend certain ranges and reduce floorspace for womenswear in favour of children’s clothing and its home line in its shops should help in the short-term.
“The company is no doubt also suffering from the general weakness on the high street as a result of the pressures faced by the consumer and we have generally looked on the sector unfavourably.
“However, Marks and Spencer is one of the few retailers that remains on our ‘buy’ list as we hope that its focus on premium food and the ongoing restructuring in its clothing business will see it fare better than some of its rivals.”
Not to mention, its attractive dividend yield in excess of 5% “is well covered,” added Miah.
CFO to step down
Alongside its interim update, the FTSE retailer issued a statement confirming that its chief financial officer Helen Weir will be stepping down and transitioning into a non-executive role.
Weir will remain CFO until a suitable successor has been found. M&S is in the process of searching for her replacement.
