Marks & Spencer’s curse: falls for nine straight quarters

Tuesday, 05 November 2013
ANALYSIS_Beloved British high street retailer seems to have been cursed as it goes through its ninth consecutive quarter of poor financial results. In the past months, Marks & Spencer has seen how not even its ‘Leading Ladies’ campaign was enough to reverse an executive exodus, declining non-food sales and a still dim consume outlook.

Marks & Spencer has suffered its ninth consecutive quarter of falling sales, as "While consumer confidence appears to be improving, there is little evidence as yet of this translating to increased spending in the retail sector,” advanced chief executive Marc Bolland on Tuesday.

"This year marks the final year of elevated capital investment in the business. From 2014/15 we will move to a lower, more sustainable long-term investment level of c.550 million pounds. This, combined with the operational improvements we are making, makes us confident that we will deliver a material improvement in free cash flow from 2014/15, and we remain focused on delivering improved shareholder returns," Bollan spilled the beans on the financial plans for the group on the short term.

CEO Marc Bolland is approaching the final sprint of a three-year, 2.3 billion pounds plan aimed to turn upside-down the last decade’s lack of heavy investment in the retailer. However, Bolland’s efforts have failed to impress the City, as clothing sales have fallen for eight straight quarters.

Although Marks and Spencer Group PLC recorded an upraise in first-half net profit – thanks to a lower tax charge, as the retailer explained in a call with analysts; profit before tax and one-off items, fell 9 percent to 287.3 million pounds. Based on these figures, and on its still declining non-food sales (which include clothing, footwear, home apparel and accessories, among other items), the company said that there was little evidence of improved confidence boosting consumer demand.

On the upside, net profit rose almost 13 percent to 249.6 million pounds, ahead of last year’s comparable period’s 220 million pounds.

Nine consecutive quarters of declining sales

"Given continued pressure on disposable incomes, we remain cautious about the outlook for the remainder of the year," Bolland said on their expectations for the coming months.

Sales rose to 4.88 billion pounds, from 4.70 billion, mainly boosted by its food division’s growth. In this vein, Bolland remains cautious on the outlook for the rest of the year, although he pointed to some "early signs of improvement" in womenswear as it battles to turnaround its ailing clothing business.

“Our key priority was the re-launch of womenswear. In September we launched our first new collection with new advertising and improved store formats. Although only in store for three weeks of the half year, our Autumn/Winter collection has been well received by customers, and we have seen some early signs of improvement.” Despite the much-anticipated new clothing range, underlying sales of general merchandise – mainly clothing – in the six months to the end of September lost 1.5 percent. Quarterly sales slightly improved when compared to the previos quarter, although still fell, by 1.6 percent.

However, Bolland wanted to stress the company’s advancement in the first six months of its current fiscal year by saying that "Marks & Spencer made progress with a strong performance in Food, International and M&S.com.”

Earlier this week and ahead of the results for the first half of the year, analysts were still reluctant to gain faith on Marks & Spencer’s fate, although it emerged in late October that M&S has managed to detain the erosion of its share of the clothing market, as reported by ‘The Guardian’.

City analysts have a mixed view on the shares as out of the 23 that cover the stock, 11 rate the shares as a ‘buy’, seven as a ‘sell’, while five are ‘neutral’, according to data gathered by ‘Digital Look’. Cantor Fitzgerald’s Freddie George believes that this is still a matter of time as “It will take a number of seasons before there is a marked improvement in performance in womenswear.”


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