M&S leaves forecasts unchanged after mixed Christmas

Marks and Spencer left its full-year profit forecasts unchanged after relatively weak Christmas trading in stores was offset by a stronger performance online.

For the 13 weeks to December 29, same-store sales were down 2.4 per cent in clothing and home and 2.1 per cent in food, for an overall decrease of 2.2 per cent. Total UK sales were down 2.7 per cent, reflecting the group’s ongoing store closure programme. 

The performance was worse than analyst consensus forecasts in clothing and home, but slightly better in food. Online sales grew 14 per cent and now account for 22.5 per cent of the total, driven by improvements to the website and investment in logistics. M&S also finished the Christmas period with less stock needing to be marked down in the end-of-season sales. The sale was the smallest for five years as a result.

Shares in M&S fell 1 per cent in early trading on Thursday.

“Against the backdrop of well-publicised difficult market conditions, our performance remained steady across the period,” said chief executive Steve Rowe, referring to November in particular, which he described as “very challenging”.

M&S is trying to wean customers off promotions by offering more everyday value. It largely stood aside from Black Friday, and offered only limited discounts on specific ranges in the run-up to Christmas. But many competitors discounted aggressively.

Mr Rowe said he “absolutely did not regret” abstaining from Black Friday. “We’ve been very clear we want to have a trusted valued proposition. Discounting on these events is not the right thing to do and we’re pleased we didn’t take part,” he said, adding that the retailer detected no detrimental impact from not being involved.

Richard Lim, chief executive of Retail Economics, said the figures reflected “the polarisation of shopping habits, with online propping up the poor performance of their store sales”. He added that the “spiralling costs” associated with the store estate would mean M&S remained under financial pressure.

Michelle Wilson, analyst at Berenberg, said the overall performance could still lead to forecast downgrades depending on the margins achieved. She added that while the food result was better than expected, it was still “very poor and a significant underperformance on the sector”.

M&S had already played down expectations for the year to March 2019, warning at the time of its interim results in September that it expected little improvement in the sales trajectory for this year while it restructured. 

It has long wrestled with the question of how to reposition its clothing ranges to appeal to a more diverse range of customers, recently enlisting television personality Holly Willoughby to curate some collections. But in recent months sales growth at the usually reliable food business has also gone into reverse, which management blamed on confusing promotions and overpriced products.

Mr Rowe said that following changes to the range and to more than 200 prices and promotions, there were “early signs of volume growth” in food and “we expect to see more momentum under a strong new management team as the year progresses”.

“Customers responded well to our Christmas ranges and campaign, resulting in solid volume growth over the Christmas period, with the majority of stores delivering like-for-like revenue growth,” he added.

Unlike rival Debenhams, M&S got through 2018 without issuing an explicit profit warning. But analysts expect little in the way of profit growth until the end of a five-year transformation programme that has already included a big overhaul of management and dozens of store closures. These will continue and may be accelerated in the year ahead. “We have to make sure we don’t call victory early and shy away from the changes we need to make,” said Mr Rowe. 


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