M&S sales fall in first quarter despite Easter boost

Marks & Spencer's struggles continued into its new financial year, with like-for-like sales remaining negative in the first quarter as the retailer reined in discounting against an unforgiving market backdrop.

LFL clothing and homeware sales fell 1.2% in the 13 weeks to 1 July and food sales were down 0.1%, dragging UK LFL sales to 0.5%.

This was despite a benefit from the week before and after Easter both falling within this year's period but not last year's, calculated to have increased food LFL growth 0.7% and general merchandise by around 0.6%.

However, total UK sales benefitted from store openings to rise 2.6%, lifting group sales to 2.7%, or 1.8% without any boost from currency moves as international sales rose 3.8%.

A year and a half after ascending to the top job, chief executive Steve Rowe's restructuring work continues, having last year reported a 64% plunge in profits on modest revenues growth of 0.6%. On Tuesday he was due to face investors at the company's annual meeting, held at Wembley Stadium.

In the trading statement, Rowe maintained first-quarter trading was "in line" with his expectations and that "we are on track" with delivery of the restructuring plan unveiled last year and left full year guidance unchanged.

"I am pleased that we continue to grow full price sales in Clothing & Home, with reduced discounting and no clearance sale in the quarter. In our Food business, we delivered strong growth from new Simply Food openings, and are prioritising better ranging and stronger promotions."

Rowe's plan involved an international retreat, which has so far seen 28 overseas stores closed out of 53 stores in the markets it plans to exit, and more of a focus on opening UK food-only stores.

While LFL sales in food stores fell 0.1% amid the cutthroat grocery market, on a total sales basis food sales were up 4.5%, thanks to new outlets being opened.

In clothing, a key tenet of the plan has been to cut back on discounting, with the quarter seeing revenue down 0.5% in line as full price sales were up roughly 7% the number of promotions was reduced and there was no clearance sale in the quarter compared with one last year.

"We start our summer sale today, a week later than last year, with terminal stock for the season significantly down," Rowe added.

REACTION AND ANALYSIS

Shares in M&S fell 1.3% in early trade on Tuesday.

Independent retail analyst Nick Bubb pointed out that ahead of the update "the jungle drums were beating that Clothing LFL sales were likely to be 'only' about 1.0% down and, so, despite the desperately soft comps, the bulls will be pleased to see that Clothing and Home sales were indeed only 1.2% down" - though adjusting for Easter the fall was 1.8%.

As for food, he said bearish investors will seize on the 0.8% fall in Easter-adjusted LFL sales as evidence of cannibalisation caused by all the Simply Food store openings.

Darren Shirley at broker Shore Capital felt it was a "reasonably subdued" statement but left his full year forecast of 28.6p of earnings per share unchanged.

"So the restructuring of M&S continues, though today’s update confirms the process could be a reasonably long and arduous one from sales perspective, albeit profitability should be supported by the new trading strategy," he said.

Laith Khalaf at Hargreaves Lansdown said the figures were somewhat flattered by a late Easter.

"Things are getting less bad in Marks and Spencer’s clothing division, but with sales still falling there’s still not too much to cheer about. However the fact that things are on an improving trend at least vindicates the decision to reduce promotional pricing, which should improve margins."

On food, the store expansion programme is expected to see around 200 new outlets opened by 2019, which Khalaf said should continue to add pounds and pennies to the bottom line, though the continued fall in LFL sales at existing stores was a disappointment.

"Overall conditions for high street retailers remain pretty grim, with consumer purses under pressure and competition coming from all angles. M&S is swimming quite hard against this tide, so it deserves some credit for treading water," he said.