M&S clothing sales declined in the quarter to June 27, while food and home furnishings like-for-likes were flat. Here is what the analysts say.
M&S should look to adopt the same winning formula for general merchandising that it uses on its food business – where a combination of product innovation and unique assortment has delivered continuous growth. Even with pressure from rival supermarkets, M&S has managed to navigate the price wars and outperform its competitors in this area.
There has also been growth this quarter for M&S.com and its decision to extend free click-and-collect at more than 100 of its Simply Food outlets is a positive move. The retailer is pinning its recovery hopes on the investment in a rapid and flexible supply chain to meet the demands from shoppers for the rapid change in fashion, as opposed to investment in an efficient supply chain, which is fast becoming a priority for many of its rivals.
Simon Johnstone, analyst, Kantar Retail
As long as the clothing gross margin uptrend remained robust we didn’t think that the M&S bulls should be too rattled and that seems to be the case (note that the share buyback starts tomorrow). In a “challenging and promotional” UK fashion market, general merchandise sales were down by 0.4% like-for-like (ie not quite as bad as the 1% fall expected), albeit it would have been 4%/5% down like-for-like without the 39% online sales bounce-back since the disastrous relaunch a year ago, but M&S are sticking to their full-year guidance for strong gross margin growth. Food was up 0.3% like-for-like.
Nick Bubb, independent analyst
Whilst it is disappointing that management has not been able to sustain the positive GM trading momentum, set against soft multi-year comparatives it should be said, we are reasonably comfortable that the slowdown broadly reflects slowing market conditions in UK apparel; most notably the cool May in the UK and little follow-through in June. We suspect management again choosing not to aggressively mark down and focusing on maximising full-price sales.
In food, we believe that M&S is in a very good place, with a high level of exclusivity alongside its strong innovation rates and demonstrably premium quality meaning that M&S Food is well positioned for the challenges of the current UK market, where discounting remains a considerable challenge. In walking the flagship Cheshire Oakes store recently, Shore Capital viewed the food department as looking vibrant, theatrical and busy whereas much of the ladieswear department looked conservative, elderly and quiet. How many times has the question been asked: will M&S ever do in clothing what it does in food?
Darren Shirley, analyst, Shore Capital
M&S’s decline in clothing is an all-too-familiar story. This is a trend that it was hoped was in reverse permanently when M&S delivered its final-quarter results in April. Instead its weak performance this quarter has once again resulted in flat like-for-likes overall for the UK. This indicates that, while its food division is certainly praiseworthy, it cannot be relied upon to offset declines across the UK business. Although we have entered a promotional period in the fashion calendar, this weakness in clothing is a setback for M&S, especially as exchange rates have limited the profitability of international sales.
Weak demand for spring/summer designs has been a problem across the board in the clothing sector, with cool May and June weather delaying the uptake of new ranges. As an extremely mature player on the high street, M&S has the experience to anticipate these potential pitfalls, in a country where extremely changeable weather is the norm. Yet as one of Britain’s biggest clothing retailers, reacting quickly to weather woes is no easy feat and M&S continues to get the mix wrong at a number of locations, with some branches sending summer lines into the sales and introducing winterwear just as Britain entered a record breaking heat wave.
Online performance now looks more promising; a new website and distribution centre saw M&S.com deliver pleasing growth of +38.7%, albeit against soft, post-launch comparatives. Yet, for a retailer that claims to be continuously investing in the improvement of clothing styles and quality, these results are disappointing.
Anusha Couttigane, senior consultant, Conlumino
With M&S clearly focusing on delivery of cash profit from its GM division, with gross margin gains the key enabling catalytic converter, the continued loss of clothing market share is arguably less of a concern than historically. This side of the business remains a work in progress, whereas the clear and superior differentiation of the food division continues to command a seat at the top table, despite the ongoing turmoil within the wider grocery sector. Events in Greece, Russia and Ukraine are indisputably more of a concern than they have been historically, but should be manageable within the totality of M&S’s geographic coverage. With particularly weak GM like-for-like comparatives in the key third-quarter period, there remains much to play for in FY16.
David Jeary, retail analyst, Canaccord Genuity