Marks & Spencer Group Plc reported a fresh drop in quarterly clothing revenue and missed estimates for food sales, dealing a blow to chief executive officer Steve Rowe as he seeks to revive the UK retail bellwether.
Same-store sales in the clothing and home division fell 1.2% in the 13 weeks ended 1 July, London-based M&S said, having slumped by almost 9% in the comparable period a year ago. The median analyst estimate was for a decline of 1%.
“There is little evidence of a turnaround in clothing and home,” Berenberg analyst Michelle Wilson said. “We believe this will continue to put pressure on profitability.”
The lacklustre performance adds to evidence that UK consumers are tightening their purse strings amid a squeeze on disposable incomes that’s affected sales at DFS Furniture Plc and Debenhams Plc. The drop in clothing sales marks the second consecutive quarter that M&S has failed to meet low expectations, and raises questions over whether Rowe’s plan to close 30 UK stores will be drastic enough in the face of a long-term sales decline.
The shares dropped 0.7% to 336.9 pence in early London trading, extending a near 6% decline in the month leading up to the announcement.
The retailer’s update comes on the same day as a report from Barclaycard showing that UK consumer-spending growth slowed to 2.5% in June. About 46% of those surveyed said that they are feeling the squeeze from inflation.
Food Disappoints
“Broadly, I would describe the consumer as volatile,” Rowe said on a call with reporters. “They are very much shopping for now, and they are cautious with their spend.”
M&S is continuing its effort to shift away from selling clothes at a discount and didn’t hold a clearance sale in the period, which, the CEO said, reduced same-store sales by about 2%. The strategy will remain a drag on sales growth for the next few quarters, although Rowe expects the retailer to progress toward positive comparable sales during that time.
In its food business – M&S’s growth engine of recent years – same-store sales fell 0.1%, missing analyst estimates for a gain of 0.6%. Rowe said that a programme to open about 250 Simply Food outlets by 2020 is taking some sales away from nearby shops.
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