May 19, 2017 / 1:30 PM / 3 years ago

M&S profit and sales set to fall after fleeting improvement

LONDON (Reuters) - Britain’s Marks & Spencer (MKS.L) is expected to report a renewed decline in clothing and homeware sales in its latest quarter, dampening the euphoria of the previous three months when it reported a first increase in nearly two years.

FILE PHOTO: People walk past a branch of British retailer Marks and Spencer in the British overseas territory of Gibraltar, historically claimed by Spain, April 20, 2017. REUTERS/Phil Noble /File Photo

One of the best known names in British retail, M&S, which also sells upmarket food, is also forecast to report a 14 percent fall in profit for its 2016-17 financial year, reflecting lower sales and higher employment costs.

It is however expected to maintain its dividend payment.

Steve Rowe, a 27-year company veteran, became chief executive a year ago, taking on the tough task of reviving a British institution that has fallen out of fashion over the last decade.

His priority has been trying to turn around M&S’s underperforming clothing business. His plan is to drive improvements in the quality, fit and availability of its ranges, while lowering prices and reducing the amount of garments sold off in special promotions.

Rowe is also working through programmes to switch UK shopfloor space away from clothing and towards food and reduce the group’s international high street exposure, closing stores in 10 markets.

He got a welcome boost in January when M&S’s clothing and homeware division reported a 2.3 percent rise in third quarter like-for-like sales.

However, Rowe cautioned that the fourth quarter would be much tougher, mainly because of calendar effects that are beyond his control.

The figures will be hit by a later Easter falling outside the quarter and by the key days of the busy post Christmas sale coming in the third, rather than the fourth, quarter.

Rowe also said consumer confidence was “fragile”, a common lament among British retailers as inflation starts to outstrip the pace of pay rises.

For the fourth quarter to April 1, M&S is forecast to report a 3.3 percent decline in clothing and homeware like-for-like sales, according to a company compiled consensus of 17 analysts forecasts.

Earlier this month rival Next (NXT.L) reported a 8.1 percent fall in shop sales in its first quarter, highlighting that disposable income is being squeezed by inflation.


M&S’s food business, which contributes over half of group revenue, is performing better than clothing and outperforming the wider food market. The absence of Easter in this period will be a big negative factor.

Analysts are on average forecasting a 0.6 percent fall in like-for-like sales. They rose 0.6 percent in the previous quarter.

Shares in M&S have increased 15 percent in the last three months, a period which has seen some significant developments.

The retailer named industry heavyweight Archie Norman as its new chairman from this September, appointed Halfords (HFD.L) boss Jill McDonald to head the clothing and home division from the autumn and renewed its contract with Mark and Neal Lindsey as sourcing directors.

It also said it would trial an online grocery shopping service this year.

Slideshow (4 Images)

Pretax profit for the 2016-17 year is forecast at 593 million pounds, down from 690 million pounds in 2015-16. Analysts are forecasting an unchanged dividend of 18.7 pence.

“The more important focus will arguably be on any forward-looking commentary - both with respect to the company’s own plans and the state of the wider market,” said analysts at Barclays.

Headwinds for the 2017-18 year include higher sourcing costs, due both to the weaker pound and higher cotton prices, and a deteriorating UK consumer outlook.

Editing by Keith Weir

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