Marks and Spencer has enjoyed a sales jump in its third-quarter but some market observers fear a post-Christmas hangover.
For the three-month period to the end of December, the UK retailer saw total sales grow 2.4%, while UK sales were up 1.8%. The star performer was food, which rose 4.5% in the period. Like-for-like UK sales rose 0.5%, food once again outperforming merchandise and rising 3%.
Speaking to reporters on a conference call yesterday (11 January), CEO Marc Bolland said the company had enjoyed “record” sales in mid-to-late December.
“The last week in the run up to Christmas has been the best week we’ve ever had for food. We brought out a lot more choice and people really bought into [that offering]. We’ve beaten all our market competitors.”
CFO Alan Stewart was unable to provide figures on volumes but said basket sizes and the number of transactions at M&S were up.
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The company said growth had been driven by promotional activity but denied that pricing had hit the bottom line.
Stewart said: “We expected it to be a promotional market. We planned for a number of promotions and that’s what we delivered to our customers.”
The company said it has focused on “tight” cost management and will continue to do so in the future, but added that major job cuts are not on the horizon and the cost reduction it refers to are from efficiencies and better planning.
Stewart added that M&S is working with food suppliers to drive down costs, but the company is not placing pressure on them, saying that all negotiations are ongoing and “positive, as we are growing”.
Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said the results are mixed. He pointed to the sales rise, a strong international performance (Bolland said sales were particularly strong in China and India, as well as France, where the company recently relaunched after a ten-year hiatus) and said M&S “pulled the rabbit out of the hat” with its food offering.
However, he is concerned that the update only provides details on sales rather than profits, as the previous trading update reported a decrease in profits because the company reined in passing rising costs on to customers. And with the traditional Christmas uplift over, he is concerned about business-as-usual in an uncertain retail environment.
The company has reiterated its forecast for its full-year results and Caroline Gulliver, retail analyst at Espirito Santo, said she believes the company is happy with the current consensus of just under GBP700m profit before tax, adding that recent forecasts below this are “a touch bearish”.
However, Neil Saunders, managing director of Conlumino, expressed concern over the company’s non-food offering and called the results “subdued”.
He said: “M&S’s investment in its food division, which has included a more innovative product mix, has helped drive footfall and interest in the offer. With many consumers willing to trade up over Christmas, M&S’s destination status, along with some headline discounts, has proved to be a winning formula.
“Direct sales show good progress with a rise of 22.4%. Unfortunately, M&S’s multichannel development is not as advanced as some other retailers and this will most certainly have cost it some growth as more shoppers used the internet this year than ever before.
“These results demonstrate that while M&S is far from being in the premiership in growth terms, it can still play a reasonably good game.
“That said, with a tough outlook for 2012 it needs to work much harder on its general merchandise offer if it is to further extend its share without resort to discounting.”
With a record Christmas behind it, it appears M&S must now look to consolidate its strong performance in food and continue to grow, without relying on costly promotional activity. How it will do that, as the seasonal glow fades into a gloomy and uncertain retail environment in 2012, remains to be seen.