Marks & Spencer's Bolland retires as quarterly sales disappoint

While unveiling a mixed third-quarter trading update, Marks and Spencer chief executive Mark Bolland announced he will retire this year and hand the baton to well-regarded merchandise chief Steve Rowe.

While M&S enjoyed its best ever Christmas for food sales, general merchandise sales slumped 5% and like-for-like (LFL) sales by 5.8%, which analysts said implied in-store sales were down in high single digits.

As a result, total group sales were entirely flat for the 13 week period to 26 December, having risen 1.4% in the first half of the year.

The womenswear division's tribulations were blamed on unseasonal conditions and falling short on "availability", with sales also likely to be affected by management's decision to support gross margins by holding back from joining in the intense promotional activity from November's Black Friday onwards.

Also boosted by continued improvement in sourcing, gross margin guidance for clothing has been upgraded to the top end of the guided range of +200-to-250 basis points, with tight control of costs also leading to operating cost guidance coming down to circa +4%-+2.5%.

For food, total sales rose 3.7%, including a 17% jump in the key Christmas week, with LFLs up 0.4%.

M&S.com enjoyed a 20.9% increase in sales, with continued improvement in traffic and record volumes dispatched from the distribution centre in Castle Donington and over 3.3m customers joining the new loyalty members club, Sparks, since the launch 11 weeks ago.

Sales from the international business were up 2.9% as it continued to face challenging macroeconomics, particularly in the Middle East franchises, though centrally owned businesses improved thanks to key markets such as India.

On Bolland's retirement, chairman Robert Swannell said the Dutchman had carried the company through "a period of necessary change", highlighting the significant investment made in enhancing the digital infrastructure.

"I am delighted that, after the most rigorous succession planning, Marc will be succeeded by Steve Rowe. Steve has a deep knowledge of Marks & Spencer and a proven track record of delivering results in key parts of the business."

Rowe started with the company more than 25 years ago, working as director of retail and e-commerce and various positions in general merchandise, before joining the board in 2012 as executive director for food.

Swannell cited his "appetite to continue the process of change, particularly in general merchandise, his perceptive and effective problem solving, his values and his observed leadership".

In a quick early note, analysts at Peel Hunt said the very weak GM showing will result in the market downgrading numbers, though "all of this will be over-shadowed" by Bolland's stepping down.

"Rowe is well-regarded by analysts but there are many who would have preferred a new broom here. That said, we have had major problems with strategy for some time and the change at the top may mean a rethink."

While profits will be somewhat protected by the strong margin performance, "the direction of travel remains backward", leaving major fundamental problems for the new CEO to solve.