LONDON (Alliance News) - Marks & Spencer Group PLC Tuesday reported year-on-year growth in sales in the first quarter of its financial year, and while general merchandise like-for-likes declined on the preceding quarter, it said that it is on track to improve its gross margin in that area of the business and that all guidance for the full year remains unchanged.
The clothing and food retailer said that total group sales were up 1.3% in the 13 weeks to June 27 from a year before, as food sales grew 3.2% and general merchandise revenue rose 0.2%. On a like-for-like basis, food sales grew 0.3% but general merchandise declined 0.4%.
M&S's food business, which traditionally does very well, continued to outperform the UK grocery market, despite the challenging conditions which are forcing UK supermarkets to cut prices in the face of growing competition from discounters Aldi and Lidl. M&S launched 700 new lines in the quarter, and the company said it is on track to open around 90 new Simply Food stores this year.
The general merchandise business, which sells primarily clothing and housewares, has been struggling for a decade or more. While the division demonstrated growth in total sales, the like-for-like decline came as a disappointment following positive like-for-like growth in the fourth quarter of the last financial year.
M&S said that it continued to focus on improving product quality and style in a challenging quarter hit by promotions and that it is on track to deliver its full-year guidance of 150 to 200 basis points gross margin improvement in that area of the business.
Chief Executive Marc Bolland told journalists on Tuesday that in April, the first month of the quarter, the general merchandise business was continuing with the same positive trends as in the prior quarter, but was hit in May and June by increased promotional activity.
Sales for the full year are ahead of expectations, Bolland said, adding that cash generation also is on track.
Online revenue continued to rise strongly at 38.7%, with customer traffic, conversion and satisfaction up on the year before, following improvements to the new website and distribution centre, M&S said.
Regionally, sales in the UK were up 1.9% but remained flat on a like-for-like basis, while international revenue fell 3.9% due to geopolitical issues, particularly in Russia, Ukraine and Turkey, a weaker euro, and other macroeconomic challenges. If exchange rates had remained the same, the retailer said that international sales would have grown 0.7%, adding that business in India and Hong Kong performed well.
"We continue to make progress against our key priorities. Our food business did very well in a difficult market. In general merchandise, sales were broadly level on last year, and we are on track to deliver the planned increase in gross margin. M&S.com performance was very strong, with customers appreciating all the improvements to our website," Bolland said in a statement.
M&S added that the GBP150 million share buyback programme which it announced back in May will commence on Wednesday.
Analysts were mixed on M&S's results, with Cantor Fitzgerald's Freddie George saying that it will be a challenge to keep the positive momentum in sales in both general merchandise and food going.
George added that investment initiatives relating to M&S's supply chain and its information technology systems will not lead to a significant increase in sales or profits over the medium term, but did acknowledge that they "bring the infrastructure up to the standards of international peers".
Meanwhile, Shore Capital's Darren Shirley and Clive Black said: "Whilst today?s update has taken us back to familiar territory for M&S, with one step forward and one step back, we remain positive on the short-medium term potential, noting that comparatives materially ease through Q2 and Q3."
Shares in M&S were trading down 1.0% at 541.68 pence late Tuesday morning.
By Karolina Kaminska; karolinakaminska@alliancenews.com @KarolinaAllNews
Copyright 2015 Alliance News Limited. All Rights Reserved.
Marks & Spencer (MKS)