Bloomberg News

Marks & Spencer Gains as Reduced Sales Goal Meets Estimates

May 22, 2012

Pages from the Marks & Spencer Group Plc website are displayed for a photograph on Apple Inc. iPads in London. Photographer: Jason Alden/Bloomberg

Pages from the Marks & Spencer Group Plc website are displayed for a photograph on Apple Inc. iPads in London. Photographer: Jason Alden/Bloomberg

Marks & Spencer Group Plc (MKS), the U.K.’s largest clothing retailer, reduced its sales forecast to a level anticipated by analysts as it reins back expansion in its domestic market amid a slump in consumer spending.

Revenue will increase by between 1.1 billion pounds ($1.7 billion) and 1.7 billion pounds in the three years through March 2014, the London-based retailer said today. That’s down from a November 2010 forecast for growth of 1.5 billion pounds to 2.5 billion pounds. Analysts had estimated sales of 10.8 billion pounds in fiscal 2014, according to the average of 21 estimates compiled by Bloomberg, compared with 9.7 billion pounds in 2011.

The reduction in the goal “is not as bad as feared,” Caroline Gulliver, an analyst at Execution Noble in London, said by phone. She has a buy recommendation on the stock.

Marks & Spencer rose as much as 2 percent in London trading after the retailer also reported profit that beat estimates. Chief Executive Officer Marc Bolland plans to ramp up the company’s online and international presence to compensate for U.K. conditions that he predicts will be tougher than forecast. Marks & Spencer said today it will invest 200 million pounds less than planned expanding its U.K. store space over the next two years, with a focus on its small-format Simply Food outlets.

“The U.K. is not completely delivering,” because of the slowing economy, Bolland said on a conference call. The reduced sales target “is something the market has already realized.”

The shares were up 0.2 percent at 339 pence as of 10:04 a.m. in London, extending their gain this year to 9 percent.

Festive Discounts

Underlying pretax profit fell 1.2 percent to 705.9 million pounds in the year through March, the London-based company said, the first decline in three years. That beat the 693.4 million- pound average estimate of 21 analysts compiled by Bloomberg.

A “challenging environment” caused the retailer to offer discounts of as much as 25 percent off knitwear at its 700 outlets over the peak Christmas period to match competitors.

U.K. retail sales fell the most in more than a year last month as poor weather and consumer caution on spending curbed demand at stores, according to the British Retail Consortium.

“It’s been a tough start” to the quarter, Bolland said.

The retailer said it plans to increase U.K. selling space by 3 percent this fiscal year, reducing to about 2.5 percent the following year and a further reduction thereafter. It had previously expected to increase domestic space by about 3 percent a year through 2015.

International Expansion

“This is partly as a response to the popularity of online shopping, but in our view reflects lower levels of confidence,” Philip Dorgan, an analyst at Panmure Gordon, said in an e-mailed note. He has a hold recommendation on the shares.

Spending on international stores will increase by 50 million pounds in the three years through March 2014, the retailer said, with four new leases signed in Paris.

About 100 new international stores are planned this year, including in India and China, and M&S will have 10 different language-specific websites by the year-end.

Tests of new concepts such as in-store delicatessens and more distinct branding for clothing ranges such as the Limited Collection and Per Una have increased sales by 2.5 percent in pilot stores. The retailer has started the next phase of the rollout with new home departments including the Conran and Marcel Wanders range, as well as a new beauty department.

“Getting an uplift of 2.5 percent gives us a lot of confidence,” Bolland said on the call.

Underlying profit excludes gains and losses on property disposals, impairment charges and one-time pension costs.

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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