M&S pins hopes on new ranges as sales keep falling

LONDON Tue Jul 9, 2013 9:48am BST

A customer leaves a Marks & Spencer shop in central London May 21, 2013. REUTERS/Suzanne Plunkett

A customer leaves a Marks & Spencer shop in central London May 21, 2013.

Credit: Reuters/Suzanne Plunkett

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LONDON (Reuters) - British retailer Marks & Spencer posted an eighth consecutive quarterly fall in underlying sales of clothing, piling pressure on management to deliver a swift turnaround when new ranges start hitting the shops this month.

Chief Executive Marc Bolland, who later on Tuesday will face shareholders angered by two years of falling profit at the firm's annual meeting at London's Wembley Stadium, is pinning his hopes on a new clothing strategy based on more stylish and higher-quality garments.

Autumn/winter ranges were unveiled in May by his new general merchandise team, led by former M&S food boss John Dixon, and received mostly positive reviews from analysts and the fashion press. That sent M&S shares, which have also been buoyed by bouts of bid speculation, to a five-year high.

The new collections will start to arrive in stores and online from July 25 with a full launch and main advertising push in September.

Investors have said there could be pressure for Bolland to go if the new autumn ranges do not set the tills ringing. They will want to see signs of a pick-up when M&S updates on second-quarter sales on November 5, while a much improved Christmas trading performance is imperative for the Dutchman's survival.

"Investors will be looking for an upturn in general merchandise sales by the end of the year. The new clothes collection was applauded by the fashion magazines, but the key thing is if the collection sells," one of M&S's top 10 investors told Reuters on condition of anonymity.

However, Bolland again cautioned the market not to expect too much, too soon. "We've always said that this will be a step-by-step approach," he told reporters.

The 129-year-old group, which serves 21 million customers a week from 766 British stores, said sales of non-food products, spanning clothing, footwear and homewares, at stores open over a year fell 1.6 percent in the 13 weeks to June 29, its fiscal first quarter.

That compared with analyst forecasts for a fall of 0.2 percent to 3.0 percent, according to a company poll of 10, and a decline of 3.8 percent in the fourth quarter of the group's 2012-13 financial year.

CLOTHING CONCERNS

"Despite challenging trading conditions and further intensification of promotional activity in the market we saw some improvements over the quarter," said Bolland, though he noted market share did dip slightly.

Shares in M&S, up 45 percent over the last year, were down 1.8 percent at 0835 GMT, valuing the firm at about 7.4 billion pounds ($11.1 billion).

Sales data for the first quarter will be the last to fully reflect garments purchased by the previous buying team.

Though the first quarter outcome represented M&S's best non-food performance since the same period in 2011, when like-for-like sales were flat, the firm did benefit from easy comparative numbers, as in the first quarter of its last financial year like-for-like sales had slumped 6.8 percent.

"Even with what is admittedly a step change on the product and range front, we still harbour concerns over the in-store execution," said Neil Saunders, director of research group Conlumino.

M&S's food business, which contributes over half of group sales, is performing much better.

Its sales on the same basis rose 1.8 percent versus analyst forecasts for a rise of 1.0 percent to 2.0 percent and an increase of 4.0 percent in the previous quarter.

The slowdown in growth there reflected Easter falling in M&S's first quarter in 2012 but in its fourth quarter in 2013 making comparative numbers much tougher.

The food business is benefiting from new products, a focus on providing for special occasions and M&S avoiding any involvement in a scandal over foods found to contain horsemeat when they were labelled as containing other meats.

Separately on Tuesday, an industry survey showed British retail sales rose an underlying 1.4 percent in June as warmer weather tempted shoppers into stores.

(Additional reporting by Sinead Cruise; Editing by Paul Sandle and Mark Potter)

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