Fashion-to-foods giant Marks & Spencer (MKS) cheapens 4.6% to 441.8p on a poor third quarter trading update. An early contender for Christmas retail loser, the high street titan's dire clothing figures heap further pressure on CEO Marc Bolland (pictured below).
Blighted by delivery problems over Christmas, foreshadowed here by Shares, M&S flags a worse-than-expected sales decline in its General Merchandise division. For the 13 weeks to 27 December, like-for-like sales fell 5.8%, with clothing sales down 5.3% despite a positive initial reception to Autumn/Winter womenswear collections.
This woeful performance reflects the impact of unseasonably warm weather in October and November, which prompted a wave of discounts across the wider apparel sector. M&S did resist the urge for heavy discounts in December, thereby supporting gross margins. In addition, sales were hit by disruption at M&S' Castle Donington distribution centre, unable to handle a glut of online orders on US import 'Black Friday'. This rattled consumer confidence in using the site and contributed to a 5.9% quarterly drop in M&S.com sales.
Over in food, M&S' specialist, quality credentials continue to largely shield it from the woes of the wider food retail market. Sales were up 17% in Christmas week with turkeys, desserts and party food flying off the shelves, though quarterly like-for-like growth of 0.1% also falls short of consensus estimates.
Bolland also reports a sales slump in the international business, impacted by turbulence in Russia and the Middle East. On the positive side however, M&S sticks with its annual gross margin forecasts and gives improved guidance on costs, offsetting the negative impact of weak sales.
Analyst reaction this morning is mixed. Cantor Fitzgerald Europe's Freddie George maintains his full-year profit forecast of £650 million, though he retains his 'sell' rating. 'Although we believe that at last there have been some visible improvements and more consistency with the womenswear ranges, we still have a number of concerns', the number cruncher writes. 'The initiatives relating to the supply chain and IT address under investment from the past and bring the infrastructure up to the standards of international peers, but will not, we believe, lead to a significant increase in sale or profits over the medium term.'
Despite trimming her forecasts, Investec Securities' retail scribe Kate Calvert reiterates her 'buy' rating. 'With further progress expected in 2015, we believe the valuation does not reflect the gross margin opportunity and shift to cash generation', she explains.
