Food margins expected to improve better than M&S had forecast

Food margins expected to improve better than M&S had forecast

UK retailer Marks and Spencer has booked another strong performance from its food business but general merchandise sales remained sluggish.

In an update this morning (9 January), M&S revealed a 1.8% increase in group sales for the third quarter to 28 December. Growth was propelled by the retailer's food unit, where sales jumped 4.1% on the year. Like-for-like food sales rose 1.6%, the company revealed. However, these gains were partially offset by an ongoing decline in general merchandise revenues, which fell 1.1%.

Commenting on the top-line performance, M&S CEO Marc Bolland said food delivered an "excellent quarter". The company raised its margin guidance for its food unit, which it said would come in "slightly ahead" of previous expectations for an improvement of 50-60 basis points.

However, this gain is likely to be offset by weaker margins in general merchandise, which is facing a highly promotional environment.

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Q3 2013/14 INTERIM MANAGEMENT STATEMENT

MARKS AND SPENCER GROUP PLC
QUARTER 3 2013/14 INTERIM MANAGEMENT STATEMENT
13 WEEKS TO 28 DECEMBER 2013

 

 

 

 

Quarter 3

13 weeks to

28 December 2013

Christmas trading

8 weeks to

24 December 20131

 

Group sales2

+1.8%

 

+3.2%

 

Total UK sales

-          Like-for-like

+1.5%

-0.2%

 

 

 

 

 

 

 

 

+2.7%

+1.0%

 

 

 

 

 

 

 

 

Food

-          Like-for-like

 

 

 

 

 

 

 

+4.1%

+1.6%

 

 

 

 

 

 

 

 

+3.8%

+1.5%

 

 

 

 

 

 

 

 

General Merchandise

-          Like-for-like

 -1.1%

-2.1%

 

+1.5%

 +0.5%

 

 

 

 

 

 

 

M&S.com sales

+22.7%

 

+24.1%

 

International sales2

+4.5%

 

+8.2%

 

 

Marc Bolland, Chief Executive said:


“We delivered an improved performance in General Merchandise over the important Christmas period, with sales up 1.5% in a highly promotional market. However, an exceptionally unseasonal October, which saw GM sales down strongly, has resulted in a quarterly performance below our expectations.

“Our Food business had an excellent quarter, with 4.1% growth and record sales over the Christmas period, including our biggest day ever in food of £64m on the 23rd December.

“M&S.com also had a great quarter with sales up 23%, strongly ahead of the market. Our strategy to transform M&S into an international, multi-channel retailer, will keep on improving our .com service with the launch of our new platform and our new warehouse at full capacity.

“I’d like to thank all of our colleagues for their exceptional hard work and commitment over the key Christmas period.”

Trading summary
This has been a challenging quarter for the general merchandise market, with unseasonal conditions and higher than ever levels of discounting. Against this backdrop, we held our full price trading stance for much of the quarter, but as the level of promotional activity in the marketplace intensified in the run up to Christmas, we responded with a number of promotions.

We saw early signs of improvement in our Womenswear business, with customers responding positively to our re-focus on quality and style, resulting in small market share growth in this area for the first time in three years3. We delivered a good performance across key categories including coats, dresses and footwear. We managed stocks tightly, resulting in a clean position at the end of the quarter. 

Our Spring/Summer collection has been very well received by the fashion press.
Our Food business delivered excellent results, with continued outperformance of the market and record sales over the festive period, up 6.1% over the food market’s key Christmas and New Year trading period4. This included our biggest ever day at £64m, up 17% on our previous record in 2011. We launched c. 800 new products giving customers more choice than ever for a special Christmas, with record results in party food, desserts and deli. One in four families enjoyed an M&S turkey on Christmas Day.

M&S.com delivered a strong performance with total sales up 23%, and General Merchandise .com sales up 32% over the eight week Christmas trading period, well ahead of the market. This was driven by an increase in both traffic to the site as well as conversion, which was ahead of last year. Customers increasingly turned to mobile devices, with orders from tablets up over 100% and mobile phones up over 80%. We are continuing to build up the volume processed through our new e-commerce distribution centre and our new web platform is on track to launch this Spring, both of which will make a meaningful difference to our service. 
The International business continued to perform well, with strong performance across most of the countries we trade in, especially in our key markets in India and China which delivered double digit growth.


Guidance

We now expect the full year gross margin in Food to be slightly ahead of the previous guidance of up 50 to 60bps. As a result of the investment in promotional activity, we now expect General Merchandise gross margin to be down 30 to 50bps. This will result in the full year UK gross margin being broadly level on last year. All other guidance remains unchanged.

Outlook

Given continued pressure on disposable incomes, we remain cautious about the outlook. Our focus is on continuing to transform Marks & Spencer into an international, multi-channel retailer.

Marks and Spencer Group plc will report its fourth quarter trading statement on 10 April 2014.

Original source: Marks and Spencer