M&S general merchandise sales decline 2.1 percent

ANALYSIS_ Department store group Marks & Spencer announced its third quarter and Christmas trading results today, which revealed the 10th consecutive quarter of declining general merchandise sales, despite fashion sales improving during the Christmas period. Like-for-like general merchandising

sales dropped 2.1 percent during the third quarter, despite the relaunch of M&S's clothing line, which included a starred filled campaign for fall. Chief executive at M&S, Marc Bolland claimed that “an exceptionally unseasonal October” caused the decline in clothing, footwear and homeware sales, which lead to a quarterly performance that was below company expectations.

General

merchandise sales increase in the run up to Christmas

However in 8 weeks to December 24, general merchandise sales grew a modest 1.5 percent, when shoppers were encouraged by aggressive promotions to shop, which included 20 percent off on all non-food goods and 30 percent discount on fashion items the weekend before Christmas.

Bolland stated that the company was compelled to lower prices and offer discounts in order to keep up with high street competitors, pointing out that M&S kept full prices throughout November and “tried to hold it, but the market went extremely promotional”. He adds that by the middle of December “there were a number of retailers, but also one that was prior to the weekend of 14 and 15 December [offering] half price deals”.

Planet Retail, global provider of retail intelligent, commented that the “generally underwhelming third quarter and Christmas trading statement” from M&S was a “whole host of conflicting message”. The firm highlights the differences in trading between the shorter Christmas period (8 weeks to December 24) and the third quarter as a whole (13 weeks to 28 December) in a report published earlier today.

The report also suggests that the growth in general merchandise sales achieved in the five weeks to December 24 will most likely impact M&S's general merchandise full-year gross margins, which are likely to “be down by 30-50 bps”. The firm concluded that although Marks & Spencer group sales grew 1.2 percent during the third quarter and Christmas trading period group sales rose by 3.2 percent, “a healthy top line increase [covers] so many underlying issues and there are still more questions than answers.”

Trading results highlight that "M&S is confused"

Joe Rundle, head of trading in the UK at ETX Capital, a financial spread betting company, believes that M&S's trading updates showcase the difficult economical conditions. He comments: “M&S is confused – sure, it’s a turnaround story with management attempting to evolve and update the clothing and homeware ranges but it hasn't found an audience; selling clothes to a younger market and a mature market places it in un-winnable position versus clothing retailers.”

Regardless of the trading results, Bolland remains hopeful that M&S's general merchandising sales will eventually improve. In an interview with the BBC, he said: “The step-by-step approach to improve our general merchandise is slowly improving, but we have always said that it will be step-by-step. Our market share has been stabilized over the quarter and it has even been for womenswear slightly improved.”

Bolland added that he has previously stated that the market's response to M&S's Fall/Winter collection will not affect his management of the company, although the under performing trading results have put additional pressure on Bolland.

In addition disappointing general merchandising sales for the third quarter, the department stores shares have dropped over the past few weeks, but Bolland is confident that the company's biggest shareholders understand that the changes implemented at M&S will take time before they start to show. Keith Bowman, equity analyst at Hargreaves Lansdown stockbrokers, commented: “given low prior expectations, investors appear to be breathing a sigh of relief."