Increased fashion focus starting to pay off for M&S
The performance of women's wear improved, with sales up 1.3%
Efforts by Marks & Spencer to become more fashion focused are starting to pay off, analysts believe, after the UK retailer revealed an uplift in sales for the division in its first-half.
M&S yesterday (5 November) said women's wear was the bright spot in its clothing division in the first half, as unseasonal weather weighed on the unit's overall performance. Clothing and footwear registered a drop in revenues of 1.6% in the six months to 27 September, but the performance of women's wear improved, with sales up 1.3% in the first five months of the year.
"Given that womenswear is one of M&S's most problematic categories, this swing into positive territory is a sign that the years of decline may well have bottomed out and that M&S's strategy of becoming more fashion focused is starting to pay dividends," Conlumino analyst Neil Saunders noted.
That said, he added that the uplift is a "gentle" one and indicates that while many women are ‘looking again' at M&S, it still has some way to go to become a destination again for many of those who previously deserted it.
"One of the keys to engaging the female shopper is a more compelling shopping environment - something M&S has traditionally failed to deliver. However, the unveiling of its newly-refurbished store in Westfield points to the fact that it now understands some of the shop-floor issues and is determined to execute better.
"More in-store services - such as a nail bar, a reduction in the density of stock, improved visual merchandising, a streamlining of sub-brands, and a generally better shop fit with a good use of digital technology, all give an indication of the direction in which M&S wants to head. And that direction is, in our view, the right one."
The retailer yesterday revealed a 1% increase in group sales in the first half to GBP4.9bn (US$7.79bn), while like-for-like sales dropped 0.7%. Underlying profit before tax climbed 2.3% to GBP268m, and UK gross margin was up 50 basis points at 41.8% driven by strong improvement in general merchandise.
Cantor analyst Freddie George, said the interim figures were better than expected, adding: "The dividend was increased as there is now a ‘glimmer of hope' that profit in FY16 onwards can move above the rough seven year range of GBP600m to GBP720m.
"We are, however, keeping our SELL recommendation until the company has traded through Christmas and we have more clarity on whether the strategy for improving gross margins over the medium term is sustainable."
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