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LONDON (Alliance News) - Marks and Spencer Group PLC Wednesday reported a slight dip in its first-half pretax profit, after seeing a slowdown in food sales growth in the second quarter and citing a warm autumn in the UK as the reason for weaker clothing sales.
But the high-street retailer said its gross margins held up well in the period, especially in its struggling general merchandise business.
M&S said total UK sales were flat in the second quarter, and declined by 1.7% on a like-for-like basis, on the back of weaker sales of clothing and general merchandise and slower sales growth from its normally robust food business. UK sales of general merchandise, including clothing, were down 3.6% year-on-year in the quarter and declined 4% on a like-for-like basis. Clothing and footwear sales on their own were down 3.0% in the quarter and down 3.4% on a like-for-like basis.
UK food sales growth slowed to 3% in the quarter year on year, and on a like-for-like basis inched up only 0.2%.
September is a big month for M&S, as it transitions to its Autumn clothing collection and it benefits from a surge of back to school sales, as parents buy their kids school uniforms ahead of the start of term.
However, M&S said Wednesday that warmer than usual weather during September held back UK clothing sales, stating that unseasonally warm weather in September wiped around 2.5% off its general merchandise and clothing sales in the second quarter, and around 1.3% for the first-half as a whole.
Internationally, sales fell into negative territory in the quarter, down 1.9%, while M&S's online business pared back some of the decline its experienced at the start of the year and was down 4.6% in the second quarter, compared to a decline of 8.1% in the first quarter. The M&S website has been held back by the transition to a new technical platform.
"M&S delivered sales growth and increased profit in the first half despite a tough market, particularly in September. We are pleased with the progress we have made against our key priorities for the year: [general merchandise] gross margin, improving womenswear, driving food growth and cash generation," said Chief Executive Marc Bolland.
M&S reported a 1% increase in first-half revenue for the 26 weeks to September 27, to GBP4.90 billion, up from GBP4.88 billion the prior year.
Its underlying pretax profit, which strips out certain costs such as provisions and restructuring costs, was up 2.3% on a constant currency basis to GBP267.6 million, compared with GBP261.6 million a year earlier, buoyed by an improvement in margins, up 150 basis points in its general merchandise business, on the back of less discounting, and 25 basis points in food.
M&S's reported pretax profit, however, dipped slightly to GBP279.4 million, down from GBP280.6 million the prior year.
"Higher gross margin and lower-than-previously-guided cost growth will deliver strong full-year cash generation, building on the increase in free cash flow last year," the company said.
The retailer said it used part of that increased cash flow to raise its interim dividend by 3.2% to 6.4 pence.
On the back of better-than-expected gross margin improvement in general merchandise, M&S raised its guidance for the full year to between 150 basis points and 200 basis points in its GM gross margin improvement.
It also lowered its operating costs guidance to 3.5%, from 4%, and said its was accelerating its Simply Food store openings to 200 over the next three years, from the 150 prior.
M&S remained cautious in its outlook for the remainder of the year, but said it's confident it is "well set up" for the key Christmas trading period.
"Despite some improvement in consumer confidence, market conditions continue to be challenging," it said.
By Rowena Harris-Doughty; rowenaharrisdoughty@alliancenews.com; @rharrisdoughty
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