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Pin to quick picksMarks & Spencer Share News (MKS)

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Share Price: 265.10
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UPDATE 3-New M&S boss faces tough task to repair clothing business

Thu, 07th Apr 2016 12:01

* Fourth quarter clothing sales lower but beat forecasts

* New CEO Steve Rowe to set out strategy in May

* Says early price cuts having an impact

* Shares rise up to 3.4 pct, down a quarter year-on-year (Adds detail, CEO, analyst comments, updates shares)

By James Davey

LONDON, April 7 (Reuters) - Steve Rowe, the new head ofBritish retailer Marks & Spencer, conceded he had hiswork cut out to end five years of almost constant falls inclothing sales after the firm suffered another quarterlydecline.

Rowe, a company veteran of 26 years, succeeded Marc Bollandas M&S chief executive on Saturday, taking on arguably the mostprestigious and high profile job in British retail. He moved upfrom the role he took only last July as head of the troubledClothing and Home division.

While Dutchman Bolland oversaw an impressive performancefrom M&S's food business and rebuilt the group's logistics, hefailed to deliver a rise in clothing sales to accompany theprofit margin gains he did achieve.

"Let me be really clear: This performance was not goodenough," Rowe said of a 2.7 percent fall in clothing and homesales at stores open over a year in the 13 weeks to March 26,M&S's fiscal fourth quarter.

"Our priority is fixing our clothing business," he toldreporters.

The fourth quarter outcome for clothing and home, whichcontributes about 60 percent of M&S's profit, was better thananalysts' consensus forecast of a 3.4 percent decline and athird quarter drop of 5.8 percent. However, it meant thedivision has enjoyed just one quarter of like-for-like salesgrowth in 21 quarters.

M&S will report results for 2015-16 on May 25 and Rowe plansto outline his strategy then, saying he was reviewing everyaspect of the business.

Shares in M&S have fallen by a quarter over the last yearand last month hit an 18-month low after Simon Wolfson, CEO ofrival Next, warned this year could be the toughest since2008.

However, they rose as much as 3.4 percent on Thursday andanalysts were prepared to give Rowe time to make an impact.

Some expect Rowe to lower short term profit expectations inMay, with the promise of growth later. Others say he maystreamline M&S's board structure to hasten decision making and reduce the firm's bloated estate of nearly 900 UK stores.

"Given Rowe's nature - dynamic, active and to the point - weanticipate that M&S will enter a period of further change," saidShore Capital analyst Clive Black.

"Whilst not necessarily insurmountable, fixing M&S' generalmerchandise conundrum, notably sustained brand corrosion, willnot be an easy or quick process."

CUT PRICES

Rowe indicated that making M&S more competitive was a likelyfocus, noting price cuts in the quarter represented the "startof a programme looking very carefully at the balance betweenpricing and our promotions."

The price of ladies black "jeggings" was reduced from 19.50pounds to 17.50 pounds and M&S sold over 30,000 units, a 230percent jump year-on-year, while the price of a mens whiteT-shirt was cut from 7.50 pounds to 6 pounds.

"We're doing this across the piece. I'm pleased with theresult so far," he said, also pointing out the need for betteravailability, and improvements across range and design.

Rowe's biggest challenge is arresting the decline inwomenswear sales, which have struggled to compete with the fastfashion of Zara and Primark.

Womenswear has been described by a former M&S executive as"the golden key to the golden door" because of the beneficial effects it has on other parts of the business.

Progress at M&S' food business stalled in the quarter. Like-for-like sales were flat, ending a run of 25 straightquarters of growth.

However, Rowe said the division still outperformed the widerfood market by 3.5 percentage points, growing its market shareto a record 4.3 percent. (Reporting by James Davey; Editing by Keith Weir)

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