Marks & Spencer Posts Weak Sales -- WSJ
July 08 2016 - 3:03AM
Dow Jones News
U.K.'s Associated British Foods fared better as it posted solid
sales growth
By Saabira Chaudhuri and Ian Walker
LONDON -- Marks & Spencer Group PLC on Thursday reported
weak quarterly sales, as the British retailer continued to grapple
with lackluster results in its clothing and home business.
The company's sales in the U.K. fell 4.3% on a comparable basis
for its fiscal first quarter ended July 2, missing analyst
estimates, though the company said its full-year outlook was
unchanged, with sales coming in flat. On Thursday, M&S shares
rose 1.6% to end at GBP2.99 ($3.87) in London.
Comparable food sales in the first quarter slipped 0.9%. Sales
in the clothing and home division, which has turned in a weak
performance for several consecutive quarters, declined 8.9%, as
M&S scaled back on price promotions in a bid to move products
toward lower, more consistent pricing.
"We knew our actions would reduce total sales but we are seeing
some encouraging early signs," Chief Executive Steve Rowe said on a
call with analysts.
One of the best-known names on the U.K. high street -- Britain's
name for the main shopping drags in its towns and urban
neighborhoods -- M&S said consumer confidence had "weakened in
the run up to the EU referendum" but added that "it is too early to
quantify the implications of Brexit."
Mr. Rowe said M&S saw consumer confidence soften in
November, citing terror attacks in Europe, concerns about the
economy and the U.K.'s referendum on the European Union. He added
that the company had noticed a further softening in March.
Mr. Rowe said M&S's change in strategy around promotions
made it "very difficult to assess" the impact of the U.K.'s
decision to leave the EU.
"On the day of the vote itself our footfall was down on that day
as customers went to vote and that's the only thing I can say about
it," said Mr. Rowe, who took the reins of M&S in April and has
since set in place the strategy of reducing promotions while
cutting everyday prices.
Liberum analyst Tom Gadsby described M&S's performance as
"very poor" and scaled back his earnings forecast, predicting that
sales would take a further hit. "We believe that in the light of
the Brexit vote consumer demand will be more severely impacted," he
said.
M&S said it has currency hedges in place for the majority of
the current fiscal year and the first half of the next fiscal year,
meaning any impact on sourcing costs from the weak pound won't
start to show for a while.
International sales, which represent around 10% of the group
total, rose 6.1%, or 0.7% at constant currency.
By contrast, Associated British Foods PLC, which owns budget
clothing chain Primark, offered a brighter outlook for its full
year and logged higher sales for the 40 weeks ended June 18. The
company said its revenue rose 1%, or 3% excluding currency
fluctuations. ABF shares were up 8.9% to end at GBP27.80 on
Thursday.
Primark reported sales growth of 7% at constant currency in the
first 40 weeks of its financial year, driven by increased selling
space and high sales a square foot. That helped offset weak
comparable sales in the third quarter that the company blamed on
"unpredictable weather."
Overall, the group's third-quarter growth was 4% at constant
currency and 7% at actual exchange rates.
ABF, which supplies food ingredients including sugar and enzymes
and owns food brands such as Ryvita crisp bread and Twinings tea,
indicated it would benefit from Britain's vote to leave the EU in
the short-term.
In April, ABF warned of a "marginal decline" in adjusted
earnings per share for the full year but on Thursday said the weak
pound would translate into higher revenue from its international
operations, and that it no longer expected earnings to decline.
For the next fiscal year, ABF said it would see both positive
and negative impacts from the falling pound. Primark will see U.K.
clothing margins squeezed by higher costs, since much of its costs
are dollar-denominated, but margins in ABF's British sugar business
will benefit from lower costs. Separately ABF said group profit
earned outside the U. K. -- roughly 50% of the total -- will be
helped by the weak pound.
ABF said the underlying operating performance of the group
during the third quarter was ahead of its expectations, boosted by
an improvement in the sugar business.
--Rory Gallivan and Anais Voski contributed to this article.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and Ian
Walker at ian.walker@wsj.com
(END) Dow Jones Newswires
July 08, 2016 02:48 ET (06:48 GMT)
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