The retail giant beat expectations, but chief Sir Stuart Rose warns the industry's woes are far from over
Marks & Spencer gave the retail sector a much-needed shot in the arm yesterday by posting fourth-quarter results that beat gloomy forecasts, driven by an uplift in younger customers numbers and buoyant kidswear sales.
Sir Stuart Rose—who again shrugged off the latest shareholder missive concerning his role as executive chairman—warned that while trading conditions on the high street had not deteriorated, they had not improved.
"The numbers are moving in the right direction. We have taken many actions over the last three to six months, both in foods and general merchandise, to get our business back on track," Sir Stuart said.
For the 13 weeks to 28 March, M&S delivered UK like-for-like sales down by 4.2 per cent, but City analysts had forecast a decline of 6.8 per cent. The retailer's underlying food sales fell by 3.7 per cent, and its clothing-dominated general merchandise was 4.8 per cent lower.
Sam Hart, an analyst at Charles Stanley, said: "The figures suggest that the third quarter of 2008-09 may have marked the nadir of M&S's sales performance in the current downturn."
For the 13 weeks to 27 December, M&S delivered UK like-for-like sales down by 7.1 per cent, with general merchandise falling by 8.9 per cent and food by 5.2 per cent.
Shares in M&S soared by 31.5p, or 12 per cent, to 296p yesterday and raised hopes that the worst of the consumer downturn may be over, although few expect the good times to return to the sector soon.
The M&S trading statement helped to lift the shares in other retailers, including the fashion retailer Next, which was up by 5.5 per cent, and the DIY group and B&Q owner Kingfisher, which was higher by 6.3 per cent.
Of the 464,000 new customers M&S attracted in the quarter, the retailer said 200,000 were younger than 35 years old. M&S said that Lily Cole, the 20-year old model who is the face of its Limited Collection, had boosted the number of younger shoppers.
The retailer's total UK sales fell by 0.3 per cent, but M&S said that adjusting for the timing of Easter this year would add 0.7 per cent to both its general merchandise and food sales.
However, its star performer in clothing was kidswear. Sir Stuart said: "Kids had another good quarter and market share is now at its highest level by both value and volume for seven years."
Sir Stuart said that M&S had held its overall clothing market share over the 52 weeks ending 1 February, based on TNS FashionTrak data. But Tony Shiret, an analyst at Credit Suisse, believes that M&S is losing market share to fashion retailers, including H&M, Zara, Primark, Tesco and Asda. "It [M&S] has not addressed any of the key issues such as marketing, price and product," Mr Shiret said.
Its group sales, buoyed by a strong international performance, rose by 1.9 per cent over the quarter.
Sir Stuart pointed to a further improvement in the performance of its food business, which accounts for about half of its sales, driven by its "Wise Buys", "Dine In for £10" and "Family Favourite" offers. Sales of its cheaper Wise Buys are up by 50 per cent, year on year, and now account for 15 per cent of food sales. Total food sales inched up by 0.4 per cent. But price cuts in food will take their toll on its overall UK retail gross margin in 2008/09, which will be 175 basis points lower than last year.
Sir Stuart brushed off criticism over his dual role, which in effect sees him act as chief executive and chairman, and the shareholder motion filed by the Local Authority Pension Fund Forum this week calling on M&S to appoint an independent chairman by July 2010. Sir Stuart said: "I feel perfectly relaxed [about it]. It is a motion, it does not mean it will happen."
City analysts expect M&S's full-year profits to tumble up to 40 per cent to about £600m in 2009 from £1bn last year.