M&S shows signs of progress even as clothing lines hit

Marks and Spencer said it is beginning to see signs of progress in its food and clothing businesses but warned that margins in clothing would be lower than previously thought as its transformation programme grinds on.

Results for the six months to September showed the food business delivering same-store sales growth of 0.9 per cent as ranges were simplified and prices reduced.

Clothing sales fell 5.5 per cent like-for-like after extensive stock availability problems. The company said that for the full year clothing margins would fall by between 0.25 and 0.75 percentage points. 

Online sales growth was less than the group had predicted at 0.2 per cent, although group costs are falling and full-year capital spending will be £50m less than originally planned.

Shares in the group rose nearly 7 per cent in early London trading, the biggest mover on Europe’s bellwether Stoxx 600, to touch its highest level since October 22. The shares though have been wallowing recently at levels last seen in late 2008.

At a capital markets event last month, the company admitted that the turnround in clothing and homeware was running 18 months behind schedule, but highlighted the improvements it was making to style and fit in mens and womenswear.

“For the first time we are beginning to see the potential from the far-reaching changes we are making,” said Steve Rowe, chief executive.

“In clothing and home we are making up for lost time,” he said. “We are still in the early stages, but we are clear on the issues we need to fix and, after a challenging first half, we are seeing a positive response to this season’s contemporary styling and better value product.”

Adjusted pre-tax profit for the six months was £176.5m, compared with £213m a year earlier, ahead of analysts’ consensus forecasts. The level of exceptional items fell sharply to £23m. One-off costs have been a feature of M&S results in recent years as the chairman Archie Norman has pushed through a painful restructuring programme that will mean more than 100 larger stores closing or relocating as M&S strives to make a third of its clothing sales online. 

There have been extensive changes to senior management and a wave of departures; finance director Humphrey Singer signalled his intention to leave after one year, following Jill McDonald, the head of clothing, who was ousted in July. 

Supply chain director Gordon Mowat is leaving after two years while David Lepley, who was to be stores director, changed his mind about joining M&S and remained at Wm Morrison. 

Shareholders have seen the company demoted from the FTSE 100 index, endured a significant cut in the dividend and had to stump up £600m in a rights issue to pay for the formation of an ambitious food joint venture with Ocado. That will commence operations next year. 

House broker Shore Capital said that, while there was much still to do, the company was clearly changing at an accelerated pace. It left its full-year forecasts unchanged.


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