By  on July 9, 2014

LONDON — While Marks & Spencer reported a 2.3 percent rise in first-quarter sales Tuesday, its general merchandise revenues — which are closely watched by analysts — continued to struggle.

Sales of general merchandise, which includes apparel, fell 0.8 percent in the 13 weeks to June 28, with same-store sales down 1.5 percent.

Clothing sales edged up 0.1 percent in the quarter, while on a same-store basis, they fell 0.6 percent. But Marc Bolland, chief executive officer of M&S, said in the trading update Tuesday that the retailer has seen “continued improvement” in clothing sales, in particular in full-price sales of women’s wear.

The results hit M&S’ shares, which closed down 1.3 percent to 4.27 pounds, or about $7.32, on the London Stock Exchange Tuesday.

While Bolland admitted to shareholders at M&S’ annual general meeting Tuesday that the firm’s first quarter had been “a mixed bag,” he underlined that women’s wear had performed positively over the quarter, on both an overall and same-store basis.

Belinda Earl, style director at M&S, said the retailer has upgraded 70 percent of its fabrics, and that looking ahead to spring 2015, the firm is focusing on “sharper subbrands and a clear M&S signature. We know there is more to do, but we are on track…and making progress on a step-by-step basis,” she said.

Despite the improvement in women’s wear, M&S’ board was subject to a volley of criticism from the firm’s private shareholders at the AGM, which was held at London’s Wembley Stadium. Typically M&S’ individual shareholders — many of them ornery pensioners — use the meeting to air their opinions about the retailer. This year, issues ranged from the necklines on M&S’ dresses to the amount of chili in its spaghetti bolognese.

One shareholder described Bolland’s three-year plan to improve M&S’ performance as “the slowest turnaround of a ship in history,” while another questioned why shareholders should believe that the retailer’s “ambitious plans will bear fruit this year?” Criticizing M&S’ clothing ranges, the latter shareholder told Bolland: “You seem to have lost sight of the job of a retailer, which is to produce goods that appeal to the public.”

When one shareholder compared M&S’ lackluster performance over the past few years to the strong growth of rival retailer Next, Robert Swannell, M&S’ chairman, said that Next’s success was not achieved “in one quarter, you do it over a consistent decade,” describing the process as “step by step by boring step,” saying that M&S planned to follow a similarly steady growth trajectory.

Bolland and Swannell said following the investments the firm has made “to keep pace with the fast-changing retail landscape,” the company is poised “to expect a significant improvement in the general merchandise business this year and in subsequent years.” In the 2013-14 fiscal year, M&S’ capital expenditure stood at 710 million pounds, or $1.2 billion, which the firm said would mark its final year of “significant capital expenditure.”

Discussing the new M&S Web site, which has had teething problems since its launch in February, Swannell said the firm had “made the right investment for the long-term good of the business,” also pointing to the 1 million-square-foot U.K. distribution center the company has opened. Online sales at M&S tumbled 8.1 percent during the first quarter, as Bolland noted that the “settling in” of its Web site had also impacted clothing sales. The retailer said it’s now focused on “optimizing the Web site commercially.”

As to the retailer’s overall performance during the first quarter, M&S’ U.K. sales climbed 2 percent in the quarter, and 0.3 percent on a same-store basis. Sales growth chiefly came from the retailer’s food business, which was up 4.2 percent, or 1.7 percent on a same-store basis.

In terms of the broader clothing category, M&S said that its less promotional stance online and in its stores had affected sales performance, “particularly online.” But the retailer said, as a result, it is scheduled to deliver its full-year gross margin guidance. International sales gained 4.7 percent during the quarter at constant currency rates and 0.1 percent at actual currency rates.

Some analysts were upbeat on M&S’ first-quarter performance. Kate Calvert at Investec said that following the positive performance of women’s wear, “more positive trends are increasingly looking likely on underlying clothing sales, international and profitability in general in H2.” But Freddie George at Cantor Fitzgerald Europe Research in London said he believes “it will take a number of seasons before the existing team is able to manifest a marked improvement in women’s wear,” reiterating a “sell” rating on the stock.

Looking ahead, M&S said that its full-year guidance remains unchanged, noting that “despite some improvement in consumer confidence, market conditions remain challenging.”

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