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LONDON (Alliance News) - Retailer Marks and Spencer Group PLC Tuesday reported a hefty drop in online sales for the first quarter of its financial year, which it blamed on the transition to its new website platform and a cutback in promotions.
Sales at M&S.com dropped 8.1% in the 13 weeks to June 28. Management struggled to give a clear reason for the extent of the decline, telling journalists that the "settling in" of the new website has held back "re-registration and conversion rates", as customers have to re-register for the new website.
The online woes are the latest setback for the storied UK retailer that has struggled for over a decade to turnaround an ailing clothing business, even though it does very well with sales of its food range. It has previously predicted that the "settling in" of its new website would take up to six months, meaning it needs to show investors a strong turnaround in the second half of the financial year.
M&S is hoping the new website platform will help drive sales growth in its general merchandise business, which includes clothes and homewares, and said Tuesday that it expects online sales to return to growth ahead of its "peak trading period" in November and December.
"It will take some time for the M&S.com business to come back. We have recently seen improving trends, and ahead of peak, we expect it to be back in growth," said Bolland.
Shore Capital Analyst Clive Black said M&S management told analysts that the poor online performance was not a result of structural issues with the new platform.
"Management stated that M&S.com had good traffic in the period and that it was encouraged by the number of items bought by customers but was disappointed by the conversion rate. Presumably, therefore, a lot of customers are not deciding to trade on its website, despite visiting it, which must be a worry," said Black.
The retailer said it remained cautious about the outlook for the overall business due to competition and promotional pricing in the UK retail sector, although it has seen some improvement in consumer confidence.
"Our full year guidance remains unchanged. Despite some improvement in consumer confidence, market conditions remain challenging," M&S said in its statement Tuesday.
The company said sales were hit as it conducted fewer of its own promotions online and in its stores, although this also meant the company is on track to deliver its full-year gross margin guidance, according to Chief Executive Marc Bolland.
It wasn't all bad news. Total sales across the group rose 2.3% in the quarter, with overall UK sales up 2%, or 0.3% on a like-for-like basis. The growth was again driven by food and international sales, while its general merchandise business was hit by lower home furnishings sales, which are mostly done online. Clothing sales continued to struggle, rising just 0.1%. They were down 0.6% on a like-for-like basis.
Total general merchandise sales were down 0.8% in the quarter, and down 1.5% on a like-for-like basis, partly due to the online hit on sales of its homewares.
International sales were up 4.7% in the quarter, supported by new international store openings. However M&S cautioned that trading conditions in Ireland remain challenging, and trading in the Middle East was held back by the timing of shipments to its franchise partners.
Food sales in the quarter grew 4.2%, and 1.7% on a like-for-like basis, and M&s said its on track to open 150 new Simply Food stores over the next three years. Its Simply Food stores are dedicated to its food ranges, unlike its department stores which sell clothes, homewares and food.
"We deem this food performance to be a highly creditable one in a demonstrably challenged sector, reflecting some benefit from the expansion of the Simply Food estate too," said Shore Capital's Clive Black.
A continued strong performance by M&S in food comes as the four biggest supermarkets in the UK, Tesco PLC, Wal-Mart Inc-owned Asda, J Sainsbury PLC and Wm Morrision Group PLC, report that sales are under pressure due to the growing popularity of discount retailers like Aldi and Lidl, as well as premium food retailers like Waitrose and M&S.
The retailer recently came to the end of a three-year plan to turnaround the business and transform itself into an "international multi-channel retailer", having pumped money into the new company website and expanding its overseas stores portfolio.
However, it continues to struggle with its main clothing offering. Rival fashion retailer Next PLC overtook M&S in terms of underlying pretax profit for the first time last year, after M&S reported its third consecutive annual drop in a closely-watched profit measure, hit by heavy discounting in the UK and continued weakness in general merchandise and clothing sales.
"Overall, we deem this to be another disappointing update from the company, with general merchandising in the UK continuing to weigh heavily upon the group?s growth prospects," said Shore Capital Analyst Black wrote in a research note Tuesday.
"M&S stock is not likely, to our minds, to materially appreciate for some time. First and foremost, it has to inject some positive momentum into its UK general merchandise sales," Black added.
M&S shares were down 0.6% at 430.70 pence Tuesday afternoon.
By Rowena Harris-Doughty; rowenaharrisdoughty@alliancenews.com; @rharrisdoughty
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