M&S Q3 trading update: what the analysts say
Retailer Marks & Spencer has reported worse-than-expected Christmas trading figures, with a poor performance in its general merchandise business - which includes clothing and footwear - offsetting strong demand for food. "Dismal," "disappointing,' and "lacklustre" are some of the adjectives used by retail analysts to sum up M&S's results.
Third-quarter trading figures, which include the key Christmas trading period, show total UK sales at Marks & Spencer rose 0.3% in the 13 weeks to 29 December, with food sales up 2.7% and general merchandise sales down 2.2%. On a like-for-like basis, sales were down by 3.8% for general merchandise.
Neil Saunders, managing director of Conlumino:
"These results...make for dismal reading. Indeed, it is difficult to take many positives from them.
"The deterioration in general merchandise was much sharper than expected and reflects the fundamental issues in clothing and especially women's wear. For all that Marks & Spencer has talked about availability, store refurbishments and multichannel, one fundamental issue remains: the clothing product and product segmentation is not right. Until this is remedied it is hard to see how other changes will bear fruit.
"In our view there are two critical issues with product. The first is that there is a lack of targeting and empathy with core customers, which means that the offer is frequently not one that is seen as being 'must have' - something that is now critical in clothing. The second problem is that even when good lines are offered, they are buried in a sea of merchandise and are not given sufficient breathing space. Essentially, the customer has to do the work to find the product they want, something that is simply not good enough in today's fashion retail market.
"With demand in a lacklustre state, the above would be enough of a problem if competition was static; however, other players have been aggressive both in expanding and in developing their ranges and propositions. In light of this, M&S seems to have been increasingly left behind.
"A prime example is John Lewis which has a strong customer overlap with M&S: the reinvigoration of its fashion offer might not have contributed much to M&S's declining clothing share, but it - along with many other players - will have certainly nibbled away at it. Next has also improved its fashion credentials, as has Debenhams through its own brand offers; meanwhile, Primark continues to lead on price. Collectively, all of these players - and more - are putting the squeeze on M&S.
"A tell-tale sign that the problems are, primarily, about product comes from the online numbers. Although M&S notched up a 10.8% rise in multichannel sales, this remains a long way below overall online market growth and significantly below that of key competitors. We attribute most of this relative weakness to failings in the offer: if consumers are uninspired by the product, improving the number of channels they can buy through will have little impact.
"Overall, despite the disappointing results M&S remains a solid player and has significant potential. There are plans in place to remedy some of the issues inherent within the business, but 2013 will need to be a year of delivery and action if the company is to turnaround its fortunes."
Freddie George, Seymour Pierce:
"The trading update for the quarter ending 29 December was worse than expected. The company blames the poor performance on an increase in discount activity. We are concerned that the stores during the critical and important two weeks before Christmas would have had the footfall but did not get the spend.
"Following this update, we are provisionally downgrading our FY13 pre-tax profits of GBP665m to GBP645m taking EPS down from 31.7p to 30.7p, but we expect more significant revisions to FY14 forecast.
"Marc Bolland will, we believe, be given another year to improve the trading performance of general merchandise following recent management changes."
Darren Shirley, Shore Capital:
"There is no doubt that this statement is disappointing from a trading perspective. In particular, we have been concerned about the momentum in general merchandising in its core market and women's wear in particular where market share has been lost over several quarters. Whilst the ranges entering Q3 have caused senior management some concern, a silver lining from the poor trade of sorts is that full price sales boosted gross margin and that the business ended the quarter with a 'clean' stock position.
"The management of M&S clothing has undergone considerable change over the last year, which creates a period of handover and arguably inertia and uncertainty. That said, it is clear that pressure is rising on the new management with respect to the nature and performance of forthcoming spring and summer clothing ranges at M&S in the UK and an improvement in relative and absolute terms is necessary for shareholders confidence to be bolstered.
"In multi-channel, where M&S is only a bit part player in food, the business in the UK appears to be impacted by range deficiencies in clothing, so impacting overall momentum too."
Bethany Hocking, Investec:
"The Q3 statement...is disappointing reading. The statement demonstrates the size of the challenge ahead to stem the declines at M&S.
"M&S is becoming structurally less profitable. Food is growing whilst GM is seeing significant sales declines. M&S must continue to grow GM online if it is to stem ongoing market share losses - but this is also a less profitable channel.
"There remains an awful lot to do to stop further profit deterioration."
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