M&S cuts sales target as UK shoppers struggle

LONDON: Bellwether British retailer Marks & Spencer slashed its sales growth forecast, signaling it expects consumer spending to remain weak as the government focuses on cutting debt and the economy struggles to grow.
Britain’s biggest clothing retailer, which also sells homewares and upmarket foods, said it expected a three-year growth drive announced in November 2010 to deliver an additional 1.1-1.7 billion pounds ($ 1.7-$ 2.7 billion) sales.
That was down from an original 1.5-2.5 billion pounds.
The 128-year old group also said that due to the growing popularity of online shopping it would invest 200 million pounds less than planned opening new selling space in Britain, mirroring cutbacks by supermarket giants Tesco and J Sainsbury.
“The UK looks completely different than it did 1-1/2 years ago,” chief executive Marc Bolland said. “The economy is not allowing us to grow much faster than we are doing today.”
Bolland said shoppers “feel a bit more squeezed than last year,” dashing hopes that a sharper than expected fall in April inflation might tempt Britons back into spending after a protracted squeeze on their incomes from rising prices, muted wages growth and government austerity measures.
Marks & Spencer (M&S) serves about 21 million Britons a week from over 730 stores and its gloomy prognosis spells bad news for an economy which tipped back into recession in the first quarter and is heavily reliant on consumers to drive growth.
A survey on Monday said Briton’s household finances worsened at their fastest rate in four months in May.
M&S’s new sales forecast came as it reported its first fall in full-year profit for three years, as even its relatively older and more affluent shoppers felt the chill of the economy.
Separately, British group Vodafone, the world’s largest mobile operator, cut its medium-term sales growth target. Also yesterday, Tesco said its boss Philip Clarke had opted not to take an annual bonus of 372,000 pounds following a poor performance by the world’s No.3 retailer in its main British market.
Bolland, who joined M&S on a 15 million pounds pay deal, refused to comment on his bonus, pointing out M&S’ remuneration committee will publish its report on June 7. He said store employees across the group would get a reduced bonus this year.
M&S’ profit before tax and one-off items dipped 1.2 percent to 706 million pounds in the year to March 31, cushioned by cost cutting and compared with a forecast for 694 million pounds.
Full-year sales rose 2 percent to 9.9 billion pounds, with sales at British stores open over a year up 0.3 percent.
For the current year M&S forecast space growth of 3 percent in Britain, reducing to 2.5 percent in the following year, with a further reduction thereafter.
At 1325 GMT, the firm’s shares were up 0.8 percent at 341 pence, just off a benchmark UK index up 1.2 percent. The stock has fallen 4 percent over the past three months.
Bolland said first-quarter trading had been tough, held back by the wettest April since records began and a soggy start to May. But he was optimistic the group would benefit from celebrations around the Queen’s diamond jubilee and the London Olympics. M&S will update on first quarter trading on July 10.
Last month, M&S missed fourth-quarter sales forecasts after running out of best-selling women’s knitwear and footwear lines, but said it would meet year profit expectations having made further cost savings.
M&S said then it had enjoyed a good start to its spring/summer clothing launch, backed by an advertising campaign featuring Take That star Gary Barlow singing The Beatles classic “Here Comes The Sun.”
But after its update on April 17 Britain endured a further month of torrential rain that is particularly unhelpful for fashion sales. Better weather is forecast in the next two weeks.
“While M&S has made some good progress on home and food we feel it still lacks a clear sense of direction on the clothing front, especially in womenswear,” said analysts at Conlumino.
“Until this is remedied growth in both sales and profits will remain under pressure.”
Bolland said the firm’s UK pilot stores had delivered good results — a 2.5 percent sales uplift — giving it confidence to roll-out the program. And he said the firm was on track to become a truly international multi-channel retailer.
“By the end of this year we will be transacting from 10 websites worldwide and opening around 100 international stores per year,” he said.
Finance director Alan Stewart said M&S was prepared should Greece, where the group has 29 stores, exit the euro. M&S would stay in the country, but had taken a 44.9 million pound write-off to reflect the loss of goodwill and asset impairment.
M&S said it would pay a maintained dividend of 17.0 pence.