Marks & Spencer sales fall ratchets up pressure on CEO
LONDON (Reuters) - Shares in Marks & Spencer (MKS.L) fell sharply on Thursday as investors reacted to poor non-food Christmas sales, a slump that has cranked up the pressure on the head of the British retailer.
Now in his final year of a three-year plan to make M&S an international, multi-channel retailer, Chief Executive Marc Bolland had on Wednesday reiterated his confidence that a new management team, led by ex-food boss John Dixon, would deliver a better performance at its general merchandise arm.
The group had announced sales of clothing, footwear and homewares slumped 3.8 percent in the 13 weeks to December 29 at UK stores open more than a year, worse than expected and weak in comparison to recent updates from rivals Next (NXT.L), John Lewis JLP.UL and Debenhams (DEB.L).
M&S shares were down 4.3 percent to 354.80 pence by 1034, even as shares in Tesco (TSCO.L), Britain's biggest retailer, rose after the company reported higher than expected sales.
Analyst reaction to the non-food sales performance ranged from "disappointing" to "dreadful", with the common theme centering on the rising pressure for Bolland and his general merchandise team to deliver.
"M&S has disappointed investors many times and though the reasons have varied (rain, Olympic distraction, buying mistakes, competitor promotions etc) the conclusion seems increasingly clear that customers are just not happy with M&S's product and value," Espirito Santo analyst Caroline Gulliver said.
"Consequently the pressure is building on John Dixon, Belinda Earl and Laura Wade-Gery to turn the business around," Gulliver added, referring to other senior executives.
Bolland, who said the non-food slump was in part due to a decision to protect margins with less promotional offers, has maintained the new team would not make a major impact until M&S launches autumn/winter collections in July.
Seymour Pierce analysts said they believed Bolland, who slashed M&S's three-year sales growth target in May, blaming the recession, and reshaped the general merchandise management team in July after the group's biggest quarterly sales drop in 3-1/2 years, would be given another year to put it right.
Group Finance Director Alan Stewart leapt to the defence of his CEO on Wednesday, when Bolland was asked if he was considering his position, telling reporters the Dutchman had the board's support and shareholders were behind the strategy.
One unnamed top-10 investor echoed the latter sentiment.
"Some retailers attract rather more attention than other businesses of their size, and also go through wider swings of sentiment than is warranted by the underlying business. Marks is just such a business," the investor told Reuters.
"They seem to have sacrificed general merchandise sales on the altar of profitability, so bottom-line impact shouldn't be too severe. Sentiment had probably got a bit ahead of itself and the recent fall in the share price has probably cooled things to a more sensible level," the investor added.
M&S, a mainstay of UK town centres and known for reasonably priced but high-quality staples such as socks and underwear, did see underlying UK food sales rise 0.3 percent.
Its results, which were for the third quarter, were due to be published on Thursday morning but were leaked to Sky News late Wednesday, forcing M&S to rush out the statement.
Analyst Nick Bubb said cost savings and its protected gross margins meant full-year profit was unlikely to fall far below the bottom of market estimates, which range from 641 million pounds to 700 million, according to M&S data.
($1 = 0.6247 British pounds)
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