M&S sales drop amidst growing confidence for Christmas trading

REPORT_ Shares from Marks & Spencer Group increased around 8 percent in the early morning trading in London, after the UK retailer said Wednesday that it is confident of the key Christmas trading period.

In its first half, the company recorded a slight decline in profit, with weak results in UK and General Merchandise segment being almost offset by strong Food results, despite the intensifying competition. The company also announced a modest growth in dividend.

Looking ahead, the company said it remains cautious about the outlook for the remainder of the year, as market conditions continue to be challenging, despite some improvement in consumer confidence.

For the first half, pre-tax profit edged down 0.4 percent to 279.4 million pounds from 280.6 million pounds a year ago. Underlying pre-tax profit, which excluded certain items, totaled 267.6 million pounds, up 2.3 percent from 261.6 million pounds last year.

Earnings per share dropped to 13.8 pence from 15.3 pence. Underlying earnings per share remained at 13.3 pence. Underlying operating profit edged down 0.6 percent from last year to 318.6 million pounds, mainly with weak UK performance.

UK gross margin, however, increased 50 basis points to 41.8 percent, driven by strong improvement in General Merchandise. Group revenue went up 0.5 percent to 4.904 billion pounds from 4.881 billion pounds last year, with 1 percent growth in UK almost offset by a 3.4 percent drop in international revenues.

On constant currency basis, group revenues increased 1 percent. In the UK, total revenues increased 1 percent, while like-for-like revenues dropped 0.7 percent. General Merchandise sales were down 2.3 percent at constant currency, with lower sales of clothing and footwear as well as M&S.com sales.

According to the firm, performance was impacted by unseasonal trading conditions in September which affected sales of Autumn/Winter ranges. However, food sales were up 3.6 percent and increased 1 percent on a like-for-like basis. The company said it continued to outperform the market, delivering 20 consecutive quarters of like-for-like growth.

Citing the increased free cash flow, Marks & Spencer said it is now appropriate to raise modestly the interim dividend by 0.2 pence to 6.4 pence per share. The company will provide a further update on shareholder returns at its full year results in May 2015.

For the full year, Marks & Spencer raised GM gross margin forecast to between 150 basis points and 200 basis points from previous estimate of 100 basis points. The company now plans up to 200 new Simply Food stores over the next three years, compared to 150 previously guided. All other guidance remains unchanged.

In London, Marks & Spencer shares were gaining 8.33 percent, and trading at 438.40 pence.(DPA)