M&S defies gloomy forecasts to reveal welcome trading pick-up

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SHARES in retail bellwether Marks & Spencer gained ground yesterday on signs that trading is picking up ahead of the all-important Christmas period.

Clothing, homeware and footwear sales fell by 1.8 per cent, which was less than expected, in the second quarter to September 29.

This was a marked improvement on the 6.8 per cent slump seen in the first three months to the end of June, which was the group’s worst performance for more than three years.

Analysts had forecast a 2.5 per cent fall in like-for-like general merchandise sales, giving investors hope that M&S could be turning the corner.

Analyst Sam Hart at Charles Stanley said: “We expect trading conditions in UK general retail to remain tough over the medium term, with the consumer environment staying subdued and the competitive landscape intense.

“M&S is likely to be amongst the more resilient retailers, however, given the older demographics of customers and their bias towards more prosperous socio-economic groups.”

Analyst Clive Black at Shore Capital said: “The core UK ladies wear has to improve its absolute and relative performance; we are encouraged that new management has been applied to this task in the form of John Dixon and Belinda Earl although their output can only really be judged in the New Year.”

Sales from M&S’s British stores open more than a year were flat in the second quarter to September 29, with the 1.8 per cent fall in general merchandise sales – spanning clothing, footwear and homewares – offset by a 1.6 per cent rise in food.

M&S’s shares rose three per cent to close the day up 10.8p at 398.7p.

Chief executive Marc Bolland, the former boss at Bradford-based Morrisons, is 18 months into a three-year plan to make M&S an international, multi-channel retailer, connecting with customers through stores, the internet, tablets and mobile phones.

The group is spending £2.4bn over three years on store re-vamps, logistics, IT and systems, with selective investment overseas.

Takeover speculation has boosted the group’s shares in recent months, but analyst Bethany Hocking at brokerage Investec said: “We continue to have concerns on M&S and view a successful bid as unlikely.”

Investors were relieved yesterday that general merchandise sales have improved from the first quarter slump.

Mr Bolland blamed wet summer weather and stock management issues that left stores short of best-selling womenswear lines. “We took steps to address the short-term issues in general merchandise and as a result, we delivered an improved performance,” said Mr Bolland.

He said stock levels are now back to normal.

According to the British Retail Consortium, retail sales slowed sharply in October, dampening hopes that shoppers will drive the economic recovery.

There are signs that worried consumers are choosing to save money rather than spend it on the high street.

“The consumer is a little bit more confident, but still cautious and finding it hard going,” said Mr Bolland.

He said recent trading has been volatile, although the group is “well set up” for the Christmas trading period.

M&S made an underlying pre-tax profit of £297m in the 26 weeks to September 29, at the top end of the range of analysts’ forecasts of around £280m, but down from £307m last year.

The group’s performance was beaten by recent updates from rivals such as Next, Debenhams, ASOS and Primark.

M&S said it is taking bolder moves to back key fashion trends, such as military coats, which sold well in the first half.

It has also overhauled its general merchandise team and hired new managers, including former Debenhams and Jaeger boss Belinda Earl to revitalise womenswear in the newly-created role of style director.

Mr Bolland said the benefits of the management reshuffle will only be seen after next year’s spring and summer ranges, which have already been chosen by the previous team.

Analysts at Singer Capital Markets said the figures suggest that M&S is beginning to turn the corner: “M&S has been dogged by ranging and buying issues over the last few quarters, part of which may have stemmed from management uncertainties and today’s update suggests they are taking control in this regard after securing a new team.”

Mr Bolland said while the Queen’s Diamond Jubilee and Olympics had failed to drive higher sales, the nation’s mood had improved after the summer’s events, which he hopes will continue in the run-up to Christmas.

The group suffered in the first quarter amid wet weather and a shortage of some of its most popular lines. M&S ended the half with net debt of £2.6bn and is paying a maintained interim dividend of 6.2p per share.

Although the UK is out of recession, many retailers are still struggling as consumers hold back spending in the face of inflation, meagre wage increases and Government austerity measures.

Last week electricals retailer Comet collapsed into administration, threatening 6,600 jobs.

ros.snowdon@ypn.co.uk

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