Is the embattled chief executive of Marks & Spencer, Marc Bolland, right to say that “the direction” of the business matters more than “the numbers”?

Is the embattled chief executive of Marks & Spencer, Marc Bolland, right to say that “the direction” of the business matters more than “the numbers”?

At the end of today’s meeting with analysts on the disappointing M&S interim results, Marc Bolland was asked what his long-term aspirations were for clothing market share and profits and he said that it isn’t just about the numbers and that what matters is that things are directionally right, as the business focuses on quality and style.

In terms of the first half performance of the business is concerned, it’s a good job that it isn’t just about the numbers, as overall underlying M&S profits fell by 9% and general merchandise sales fell for the nineth consecutive quarter.

In Q2 (the 13 weeks to the end of September) general merchandise sales fell by 1.3% LFL, despite what was clearly a good start for the official launch of the new womenswear range. Incidentally, M&S was trumpeting back in May that the first of the much-vaunted new ranges would be arriving in-store at the end of July. General merchandise sales also continued to fall despite increased promotional activity and stock clearance (with the gross margin down by as much 100bps in the first half overall) and despite more investment in customer-facing staff.

If sales fall, gross margins fall and costs go up - you don’t have to be a genius to work out that the direction of travel for profits is going to be negative. Yet Marc Bolland came across at the results meeting as being surprisingly confident for a man who is permanently on the brink of getting sacked, if the press is to be believed.
 
Part of Marc Bolland’s confidence must stem from the fact that the food side of the business is doing well, with LFL sales up by 3.2% in Q2 (the 16th consecutive quarter of growth) and overall food gross margins up by 50bps in the first half.

Unfortunately, the food business probably still only accounts for little more than 35% of UK profits, given the lower margins, despite its hefty contribution to sales, so M&S urgently needs to get the rest of the business performing as well.
 
However, one number that Marc Bolland was happy to give is that 80% of the advertised autumn women’s fashion lines sold through at full-price in the first six weeks after the early September launch, and that M&S had backed those lines with a 50% extra volume buy. That sounds good and appears to be much better than M&S has done in the past with new season launches, reflecting the improved co-ordination of in-store merchandising and POS material with the “Leading Ladies” press advertising.
 
But M&S hasn’t said how non-advertised fashion lines have done and Marc Bolland was quick to point out that the overall clothing market remains difficult, noting the weak clothing sales outcome for October in the BRC Retail Sales survey today.

Another number that Marc Bolland was happy to quote was that the “Leading Ladies” press advertising campaign received nearly 10m hits on Facebook, as is if you get social media interest then the sales will follow.
 
Clearly, M&S is trying to transform itself as a business and adapt to the brave new world of digital and online, but, from a PR perspective, it might have been better if they had avoided announcing the results on November 5th (inviting cruel and unhelpful headlines in the press about damp squibs and a lack of fireworks) and avoided announcing on the same day as the bumper annual profits from Primark were announced by ABF (Primark made £514m operating profit in the year to early September, a margin of 12.0%, up 44% on the prior year).

Yet the City was pleased by what M&S had to say today, judging by the 3% pick-up in the share price, and there does appear to be some relief that there was no downgrade of full year profit expectations (with M&S still guiding to strong H2 gross margins) and pleasure at the signal that operating cash flow will improve significantly after this year, as capital expenditure reverts to more normal levels.

Whether M&S has spent all that money on new distribution warehouses, IT systems and ecommerce platforms wisely remains to be seen, but Marc Bolland would be well advised to have some better looking numbers to report the next time that he reports to the City. In the meantime, hope springs eternal and “Spring” is literally in the air, as M&S previews the new spring fashion ranges on Wednesday next week.
 

 

 

 

 

 

 

 

 

 

 

 

 

 

was no downgrade of full year profit expectations (with M&S still guiding to strong H2 gross margins) and pleasure at the signal that operating cash flow will improve significantly after this year, as capital expenditure reverts to more normal levels.
 
Whether M&S have spent all that money on new distribution warehouses, IT systems and ecommerce platforms wisely remains to be seen, but Marc Bolland would be well advised to have some better looking numbers to report the next time that he reports to the City. In the meantime, hope springs eternal and “Spring” is literally in the air, as M&S preview the new Spring Fashion ranges on Wednesday next week.