M&S appoints new CEO

Third Quarter Trading

Marks & Spencer has reported on third quarter trading, covering the 13 weeks to 26th December 2015.

‘Excellent Christmas in Food; GM sales down, gross margin up’

Update on key priorities:

Food sales – Best ever Christmas

* An excellent quarter in a highly competitive market: sales +3.7%; +0.4% LFL 
* Strong outperformance of the market; record sales, +17% in the key Christmas week

General Merchandise gross margin up significantly

* Continued improvement in sourcing and decision to hold back from heavy discounting
* Margin guidance upgraded to the top end of the guided range of +200 to +250bps

General Merchandise sales disappointing

* Sales -5.0%, LFL -5.8% due to unseasonal conditions and availability
* M&S.com sales +20.9% driven by strong customer traffic

Strong cash generation

* Operating costs guidance improved from c.+4.0% to c.+2.5%
* Ongoing share buyback programme, £111m of shares bought to date

Marc Bolland, Chief Executive, said:

“M&S had an excellent Christmas in Food, delivering record Christmas sales and strongly outperforming the market. General Merchandise sales were disappointing. We continued to prioritise gross margin and held back from the heavy discounting seen across the market in the run up to Christmas. As a result we now expect GM gross margin to be at the top end of the guided range. 

“I’d like to thank all our colleagues for their hard work and great service over the Christmas period.”

Trading summary
Our Food business had its best ever Christmas, significantly outperforming the market, with record sales over the festive period, up 17% in the key Christmas week. We have now delivered 25 consecutive quarters of LFL sales growth. Our differentiated products, market leading innovation and unrivalled quality made us the destination of choice for customers at this special time of year. We launched over 800 new products, including 400 unique seasonal lines.

In General Merchandise, we faced challenging trading conditions and fell short on availability. Unseasonal weather impacted sales across the clothing sector and resulted in unprecedented levels of promotional activity in the market, starting from Black Friday and intensifying through December. Against this backdrop we held back from the heavy discounting seen across the market especially in the run up to Christmas. While this had an adverse impact on sales we protected gross margin, which we now expect to come in at the top end of the guided range. However, we acknowledge there is more to do to address the disappointing GM sales, and the new team are focused on the three key priorities of availability, ranging and design.

M&S.com delivered a strong performance with continued improvement in traffic and customer experience. Our distribution centre in Castle Donington performed well dispatching record volumes while delivering a high level of customer service. We successfully launched our new loyalty members club, Sparks, with over 3.3m customers joining since the launch 11 weeks ago.

Our International business continued to face a challenging macro-economic environment, particularly across our Middle East franchise region. However, sales in our owned businesses improved with strong performance in key markets such as India.

Outlook
We now expect GM gross margin to be at the top end of the guided range of +200 to +250bps. As a result of tight control of costs as well as lower volume growth, we have improved our operating cost guidance from c.+4% to c.+2.5%. All other guidance remains unchanged.

We will report our fourth quarter trading results on 7 April 2016.

Source : M&S Press Release
http://corporate.marksandspencer.com/media/press-releases

Joshua Raymond Chief Marketing Officer at XTB.com comments:

“The headline will be the departure of CEO Marc Bolland after a highly volatile last few years as the boss of M&S. Bolland has been under intense pressure from major shareholders for his failure to grow the business. And when you look at their recent results, its easy to understand why Bolland had to go and the tough job his replacement, Mr Rowe now finds himself in. Somewhat paradoxically, I expect shareholders to react well to the news that Bolland will now depart after months of speculation.

A drop of 5.8% in general merchandise is simply awful and at the bottom of market expectations. Whilst the firm did enjoy what it claimed was its best ever Christmas week for food sales, like for like food sales over the Q3 period grew 0.4%, which is disappointing though shows M&S fared better than some of its competitors. Overall like for like UK sales fell 2.5%.

On the plus side, the retailer confirmed that operating margins for general merchandise would be at the top end of its guidance range, between 2% and 2.5%. M&S share prices recently hit a new 14 month low.”

Source: /www.xtb.com