Blog: M&S battens down the hatches
Leonie Barrie | 2 October 2008
Just like its customers, Marks & Spencer is battening down the hatches and hoping to ride out the downturn.
The retailer, which posted second-quarter trading figures today, said it plans to cut capital spending by up to GBP200m (US$352m) – that’s down to GBP700m this year and GBP400m in the 2009-2010 financial year – slashing its unpopular store modernisation programme and focusing instead on improving its supply chain and information technology systems.
Even though its cash-strapped middle-market shoppers continue to trade down to discount alternatives or buying fewer items, M&S results were broadly in line with expectations.
Second quarter like-for-like sales in the UK were down 6.1%, and like-for-like general merchandise sales, which includes clothing, fell 6.4%. Most recent trading, in the 13 weeks to 27 September, saw clothing sales down 3.5%. Perhaps most importantly, management maintained its full-year dividend.
That said, profit margins are coming under pressure via increased price-cutting, with UK gross margins expected to fall 100 basis points this financial year.
But in the run-up to what’s likely to be the worst Christmas for at least 30 years – and as a measure of just how tough the markets have now become – if the retailer can get away without any more downgrades for the full year it will be off the hook... at least for the time being.
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