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Marks & Spencer defies UK retail gloom

Marks & Spencer defies UK retail gloom
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First Published: Wed, Apr 06 2011. 02 57 PM IST
Updated: Wed, Apr 06 2011. 02 57 PM IST
London: Marks & Spencer defied the gloom surrounding British retailers last month, beating sales forecasts and winning market share with new ranges like healthy foods and old staples like lingerie.
Shares in Britain’s biggest clothing retailer, which also sells upmarket foods and homewares, rose 4% after it said it had not seen the drastic fall in sales reported by others.
“Despite some of the things that we’ve heard ... We have not seen any dip or blip or wall. Customer confidence is low but held stable,” chief executive Marc Bolland told reporters.
“Strong products backed by great advertising meant we outperformed the market and grew share in both food and clothing,” he said.
But he expected trading to get tougher as consumers are hit by government cutbacks, rising prices and worry about higher interest rates.
A raft of tax rises and welfare benefit cuts came into force on Wednesday aimed at tackling Britain’s record public spending deficit.
“We see an environment out there that for the coming year will be absolutely challenging because commodity pricing is up and we know that discretionary spend will be down,” he said.
M&S forecast gross profit margins would be flat to 25 basis points higher in 2011-12, as it cuts costs and improves purchasing and distribution in order to offset an expected 5% rise in operating expenses.
British retailers including household goods group Home Retail, electricals retailer Dixons, mother and baby goods chain Mothercare, and music and books group HMV have issued profit warnings in recent weeks, raising fears ahead of M&S’s trading update.
Bolland suggested M&S was benefiting from sharp falls in sales of so called big ticket items elsewhere.
“Instead of buying a big ticket item people buy something that is an affordable treat but is quality,” he said.
He said shoppers, weary of austerity, wanted to celebrate “more than ever” occasions such as Valentine’s Day and Mother’s Day.
M&S shares, which have lagged the STOXX Europe 600 retail index by 6% over the past year, were up 13.8 pence at 354.05 pence at 02:00 pm, valuing the business at about 5.6 billion pounds ($9.16 billion).
“M&S has a degree of self-help to support margins, some protection from its demographic positioning and a genuine market share opportunity,” said Investec analyst Katharine Wynne.
The 127-year-old group, which serves 21 million Britons a week from around 700 stores and has over 350 mainly franchised shops abroad, said sales at UK stores open over a year rose 0.1% in the 13 weeks to 2 April, its fiscal fourth quarter.
While down on a 2.8% increase in the third quarter, that was well above analyst forecasts for a 2-4% fall.
Stripping out adverse calendar effects, underlying sales were up 2.2% and M&S said it gained 30 basis points of market share in non-food goods and 10 basis points in food.
Underlying general merchandise sales fell 3.9%, less than expected, as strong sales of menswear and lingerie helped to mitigate the negative calendar effects.
Underlying food sales rose 3.4%, helped by over 320 new products and strong sales of healthy meal brands “Count on Us” and “Simply Fuller Longer”.
Bolland, who joined M&S from grocer Morrisons last year on a 15-million-pound pay deal, put innovation at the heart of a strategy plan announced in November, which also focused on revamping stores and expanding online and abroad.
On Friday the firm announced a return to France, 10 years after abandoning western Europe.
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First Published: Wed, Apr 06 2011. 02 57 PM IST
More Topics: M&S | Marks & Spencer | Q4 | Sales | Profit |