You have to wonder if Marks & Spencer’s chief exec Marc Bolland sometimes wishes he had stuck to supermarkets. The former Morrisons boss has overseen a massive expansion of his company’s food division but he’s still struggling to get people excited about its clothes.
Today’s interim results fit the pattern. The grocery sector is in choppy waters thanks to falling food prices, but M&S’s food sales were up 3.3% in the 26 weeks to September 26, or 0.2% on a like-for-like basis. Things are going so swimmingly that it opened a net 26 new Simply Food stores in the period.
But sales of general merchandise, which includes homeware as well as clothes, were down 0.4%, and 1.2% like-for-like. It blamed that performance on ‘unseasonable conditions’ (i.e. warm weather) in the first quarter, and on its decision to offer fewer discounts in the second quarter. On the plus side that did improve its profitability – its gross margin for general merchandise was up 285 basis points to 56.6%.
Its reported pre-tax profit figure was less impressive, down 22.7% to £216m. That was the result of exceptional items though, including £48.7m spent on a store review and £27.5m of PPI mis-selling provisions for M&S Bank. On an underlying basis its profits were up 6.1% to £284m, which sent its shares up by 3.25% to 537.4p this morning (a 6.3% increase in its dividend probably helped too).
Profits are all well and good but some have expressed concern that M&S is pursuing a strategy too preoccupied with the short-term. John Ibbotson, director of the management consultancy Retail Vision, said Bolland’s focus on cost-cutting risked ‘sowing the seeds of destruction’.
‘All vagaries of fashion aside, one of the key reasons for M&S’s 130 years of survival is its consistent quality,’ he said. ‘To put this formula at risk in an attempt to keep up with fast-growing rivals like Next borders on folly, and it’s no wonder the brand’s head of clothing John Dixon jumped ship this year.’ Miaow.
There are some signs of life, though. The retailer’s Sparks loyalty scheme, launched two weeks ago (just 20 years after Tesco’s Clubcard...) has already signed up 1.8 million members. Online sales are up 34.2%, and 83% on mobile devices, after it spent some cash on improving its previously derided website. But it still has the fundamental problem of a lack of interest in its clothes.
‘The chief executive says he wants to stay on another two years at the venerable brand,’ Ibbotson added. ‘But unless clothing sales turn round soon, and if he continues his dangerous tinkering with M&S’s reputation for quality in the pursuit of increased profitability, I wouldn’t count on it.’