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LONDON — Shares of Marks and Spencer Group plc fell 1.1 percent Tuesday after the retailer gave a cautious outlook for the first few months of the current fiscal year.
This story first appeared in the May 21, 2014 issue of WWD. Subscribe Today.
The British retailer’s shares fell to 4.46 pounds, or $7.50 at current exhange, from 4.51 pounds, or $7.58.
In reporting a 13.8 percent increase in net profits for the year ended March 29, M&S said its relaunched Web site will take four to six months to “settle in,” which will hit sales of general merchandise — including apparel — in the first quarter. But the company said that as a result of its operational improvements it expects to “deliver a significant improvement in our general merchandise gross margin over the next three years, through a combination of a new approach to sourcing and trading capabilities.”
M&S said it expects its gross margin in the general merchandise category to grow by 100 basis points, thanks to improvements in sourcing, and that its capital expenditure will be lower, at between 500 million pounds and 550 million pounds, or between $841 million and $925 million.
Analysts generally remained skeptical of the retailer’s prospects, which have struggled in recent years because of merchandising missteps and increased competition. In a research note Tuesday, retail analyst Freddie George at Cantor Fitzgerald Europe Research in London said he believes “it will be a number of seasons before the existing team is able to manifest a marked improvement in performance in women’s wear,” noting that for M&S’ fall ranges “the branding and the demographic and age profile of its target customer remains unclear.”
Bernstein Research in London said in a research note Tuesday that “while management’s tone remains positive and confident in the transformation of the general merchandise division, we believe the stock reaction today will be driven by how much credit investors are willing to give M&S after another year of relatively weak results,” the company said, rating M&S’ stock as “underperform.”
The comments came despite a marked improvement in profitability last year, with net profits rising to 506 million pounds, or $834.9 million, in the year to March 29, driven chiefly by the retailer’s income tax rate and finance expenses being lower than in the previous 12 months.
M&S’ underlying pretax profits fell 3.9 percent during the year to 622.9 million pounds, or $1.03 billion, marking the third consecutive dip in underlying pretax profits. Dollar figures have been calculated at average exchange rates for the periods to which they refer.
Marc Bolland, chief executive officer of M&S said: “We are focused on improving our performance in general merchandise and were pleased to see early signs of improvement. Three years ago, we recognized the scale of investment required to transform our business.…We are making solid progress on this journey and are now focused on delivery.”
M&S group revenues rose 2.8 percent during the year to 10.3 billion pounds, or $16.9 billion, which the firm said was driven by good performance in its food, international and multichannel businesses.
In the U.K., same-store sales edged up 0.2 percent, while general merchandise same-store sales, of which clothing is part, fell 1.4 percent.
M&S’ total U.K. sales rose 2.3 percent, while general merchandise sales were flat. M&S said the fall in same-store general merchandise sales came against a backdrop of a “challenging clothing market, with unseasonal conditions and high levels of promotional activity.”
The company pointed out that clothing sales “returned to growth” in the fourth quarter of the year, as the company made improvements in its buying and merchandising and upgraded the fabrics in its clothing ranges. The company said the “improving trend” in clothing sales is continuing in current trading.
U.K. food sales grew 4.2 percent overall and 1.7 percent on a same-store basis, while international sales grew 7.3 percent at actual exchange rates during the year and multichannel sales were up 22.8 percent.