- Q4 group sales up 1.9 per cent
- General merchandise reverses Q3 loss
- GM margins down 0.2bps for FY, versus flat expectations
With UK sales remaining stubbornly flat, Marks and Spencer stitched together a more encouraging fourth-quarter result, with its troublesome general merchandise arm reversing its decline in the previous quarter but seeing margins remain depressed.
Second half general merchandise gross margin will be down against the previous year, in line with the first half, as the group looks to compete with the high levels of promotion from its rivals. As a result, full year UK gross margin is expected to be down around 20 basis points, compared to a flat outcome previously expected by the market.
Under-fire Chief Executive Marc Bolland hailed a strong performance from womenswear, "which is showing clear signs of improvement and performed ahead of Clothing", and a "great quarter" for food, especially considering the later timing of Easter.
Analyst Clive Black at Shore Capital said the update was "frankly quite mellow albeit no great surprise to the market".
Clothing sales were up 1.3% in total, up 0.6% on a like-for-like basis, helping general merchandise post a modest sales improvement of 0.2%, reversing the preceding quarterer's fall of 1.1%.
For the UK overall, the FTSE 100 retailer maintained total sales growth at 1.5% as it had in the previous quarter, although like-for-likes were disappointing with a fall of 0.2%.
Total group sales for the fourth quarter were only slightly ahead of the preceding quarter's 1.8% at 1.9%.
The international business continued to perform well, up 4.7%. There was good growth in India, in our flagship stores in China and in the Gulf, with Western Europe "pleasing", with good improvement in Greece and Czech.
Food, while up 2.5% year-on-year against tough comparatives and 0.1% on a like-for-like basis, was down on the previous quarter's numbers.
The company said customers continued to recognise M&S's "unrivalled quality and provenance" and to turn to its offering for special events, such as Valentine's Day, with a record number of Dine In deals sold, and Mother's Day, which produced a record day on chocolates and flowers.
"We are well set up for the coming Easter season, a third of the range is new this year and we have more choice than ever before," it said in a statement.
Looking forward, despite some improvement in consumer confidence, the FTSE 100 group remained "cautious about the outlook", saying the board's focus was "on continuing to transform Marks & Spencer into an international, multi-channel retailer", implying the UK will be less and less of a focus.
Retail analyst James McGregor of retail consultants Retail Remedy said he saw this international, multi-channel strategy was arguably the company's "best hope".
"But is this a tacit admission that its dated bricks and mortar portfolio in the UK, with its ongoing clothing problems, will never again be the force it once was?"
McGregor cast a doubtful eye on the clothing turnaround. "We'd need to see the clothing improvement continue for another three to four quarters at least before we can even talk of a turnaround" he said.
While M&S's online presence is growing and strong, he argued younger shoppers "wouldn't consider" shopping for clothes from the company, "except perhaps for underwear".
This might be deliberate, however, as he also pointed out that a large proportion of the group's store estate is in "secondary destination towns serving old people".
Shore Capital was more positive on the stock, but admitted the "heart beat of the retailer is apparel and ladieswear" and said M&S needs to deliver stronger trade and cut out what tend to be small market downgrades.
"Despite distinctly dull trade, we do see progress in the proposition, its merchandising and execution and we are encouraged by the company's comments on recent womenswear activity. However, there is clearly a lot more to do for M&S to do stem market share decline in ladieswear in the UK on a sustained basis."
Broker N+1 Singer bemoaned the "lack of visible revenue improvements", further testing investors' resolve but said there was no doubting the "massive amount of change" being implemented across the group, both in terms of customer-facing and back-of-house projects.
Analyst Matthew McEachran said: "The potential from these changes, should they gain traction, remains significant, particularly as the systems and logistics changes are reducing fixed costs. The recent pressure on forecasts is disappointing but given the current valuation metrics we remain buyers on the back of the targeted transformation of the offer and improving in-store proposition."
On Wednesday night, consensus forecasts for full-year profit before tax had fallen to £625m, with consensus for 2015 settled around £710m.
Shares in M&S were up 2.4% to 467p at 08:31 on Thursday.