January 11, 2018 / 11:00 AM / 6 days ago

Britain's M&S feels heat from mild October as sales stumble

LONDON (Reuters) - Marks & Spencer’s clothes and sales fell in the last quarter of 2017, hampering the British retailer’s latest attempt at a corporate turnaround and knocking its shares.

Once a venerable British institution, M&S faces unrelenting competition on the high street and online, while efforts to revitalise its 134-year-old business are being held back by a squeeze on consumers as inflation rises and wage growth falters.

“I would describe the consumer as quite fragile and quite volatile and if there’s a reason not to spend they take it,” M&S Chief Executive Steve Rowe told reporters.

In stark contrast to M&S’s woes, British online fashion retailer Boohoo, founded little over a decade ago, said it had doubled revenue in the final four months of the year and raised its sales forecast.

M&S got a welcome publicity boost earlier this week when Meghan Markle, the U.S. fiancee of Britain’s Prince Harry, was photographed wearing a 45 pound ($61) M&S jumper.

But shares in M&S fell as much as 7 percent on Thursday after it said comparable sales of clothing, homeware and food had all fallen in its fiscal third quarter, albeit not by as much as most analysts had forecast.

“We had a mixed quarter that started off with a challenging October but got better on both sides of the business in the run-up to Christmas,” said Rowe.

He said that but for October’s unseasonable mild weather, M&S would have had a positive sales performance for clothing.

M&S had held its full price stance, when others were cutting theirs, Rowe said, adding: “We said we wouldn’t discount, we’ve stuck to that, and I think that’s the right thing to do.”

Investors needed to be patient and M&S would return to positive like-for-like sales, he said. “If it comes through in the next quarter fantastic, if it doesn’t I believe we’re taking the right steps.”

But some analysts are still to be convinced.

“Rowe’s five-year plan is no more than a profit stabilisation strategy and (we) see better value elsewhere,” Investec’s Kate Calvert, who has a “sell” rating on M&S, said.

Pedestrians walk past a branch of Marks & Spencer in northwest London, Britain July 8, 2014. REUTERS/Suzanne Plunkett/Files

WORK TO DO ON FOOD

Although clothing rival Next reported better-than-expected Christmas sales last week, M&S is not the only British retailer to have struggled.

Debenhams and Mothercare have both issued profit warnings, John Lewis said on Thursday that higher costs and tough competition had blunted the benefits of solid Christmas sales, while House of Fraser saw its sales fall.

And Tesco, Britain’s biggest retailer, missed forecasts for its festive trading.

M&S re-set its strategy in November, two months after retail veteran Archie Norman joined as chairman, saying it would speed up store closures and relocations and re-position its food offer.

On Thursday, M&S said like-for-like sales of clothing and homeware fell by 2.8 percent in the quarter - ahead of analysts’ average forecast of a 3.4 percent decline but worse than a second quarter fall of 0.1 percent.

Same store food sales fell 0.4 percent - better than analysts’ average forecast of a 1.1 percent decline but worse than a 0.1 percent fall in the previous quarter.

Online sales also suffered, with growth slowing to 3 percent, from 6 percent in its second quarter.

Rowe, who said he was working well with Norman, said M&S had cut prices on about 200 food lines before Christmas but would do more to improve its competitiveness, availability, supply chain and waste reduction.

“In these turbulent times it’s great having two retailers to bounce ideas around.”

And despite the sales disappointment, M&S maintained its guidance for the full 2017-18 year.

Before the update, analysts were on average forecasting a pretax profit before one-off items of 578 million pounds, down from 614 million pounds in 2016-17. This would represent a second straight year of decline.

($1 = 0.7395 pounds)

Additional reporting by Alistair Smout; Editing by Kate Holton/Guy Faulconbridge/Alexander Smith

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