Bad, but no disaster: M&S counts cost

Dressing down: The going was tough on sales of fashion lines despite ads fronted by model Rosie Huntington

11 April 2012

Marks & Spencer's clothing and homewares department had a Christmas to forget after sales came in at the lower end of City expectations amid fierce discounting on the High Street.

However, the retail giant said its food division which accounts for about half its sales delivered an "outstanding" performance, while the chain maintained its full-year profit expectations.

The results of the retail bellwether, which has more than 700 UK stores and serves 21 million customers a week, are the clearest indication yet that while Christmas 2011 was anything but a vintage one, it was far from the disaster that doom merchants had predicted.

While M&S and Next have found the going tough in stores on fashion lines, John Lewis and Debenhams can claim to be in the winners' camp, at least in terms of positive underlying sales in stores, although all retailers benefited year-on-year from being up against soft, snow-affected comparable sales in December 2010.

M&S posted general merchandise sales, which is dominated by clothing, down by 1.8% over the 13 weeks to December 31, lower than City consensus forecasts of a 1.5% fall.

M&S partly blamed this on a 13.3% slump in sale at its homewares department after its decision to stop selling technology in its stores in early 2011, although this accounts for less than 10% of its total, non-food sales.

Indeed, while M&S's total clothing sales grew 1.1% over the 13 weeks, this was boosted by new stores and non-food inflation and means they fell on a like-for-like basis. Total UK sales, excluding VAT, rose by 1.8%. M&S touted a "record performance" on menswear and sleepwear.

Furthermore, chief executive Marc Bolland defended its performance on female clothing.

He said: "On womenswear, we have done the right thing. We came out with lots of products and promotions in November and December that people really appreciated."

In fact, the retail giant had to discount robustly to tempt more shoppers through its doors, which will result in its general merchandise gross margins falling over the year. But M&S said this will be offset by additional savings from "ongoing, tight management of costs".

This means it still expects to meet full-year profit forecasts of £697 million, down on the £714.3 million in 2010-11 and a long way from the £1 billion-plus four years ago.

However, M&S cooked up tasty underlying food sales which were 3% up - double consensus forecasts and its ninth-consecutive quarter of growth.

Food sales have been tough for most retailers. The Co-operative Group said like-for-like results were down 0.2% in the 13 weeks to December.

Bad, but no disaster: M&S counts cost

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