Marks & Spencer Group Plc, UKs biggest clothing retailer by sales, reported worse than expected holiday results, citing online delivery problems.
London-based M&S reported a 5.8% decrease in like-for-like sales in its general merchandise unit, including clothing and other non-food products, during the 13 weeks through December 27. The results largely differ from the 3% fall in sales that analysts had projected.
In December M&S faced problems in its fully automated Castle Donington distribution center located in central England as the £200 million facility was overwhelmed by customer orders spurred by Black Friday discounts.
The retailer was even forced to disable its next-day delivery option as shipments were taking up to 10 days to reach their destination. However, M&S announced it has fixed the issues and deliveries are now back to normal.
Clothing sales marked their fourteenth consecutive quarter of declines with a 5.3% drop during the recent one as unexpected warmer weather hurt performance in October and November as well. But according the CEO Marc Bolland, clothing sales would have fallen only 1%, if the company didnt have to deal with distribution problems and above average temperatures.
Food like-for-like sales were up 0.1% in the quarter, including a 17% record jump during the key Christmas week. However, food performance was also below analysts expectations of at least 1% growth.
“M&S had a very good Christmas in Food. We delivered record Christmas sales, strongly outperforming the market,” Mr. Bolland said. Including new stores, food sales increased 2.8%.
M&S said it has made progress on its full-year gross margin and maintained its guidance of improvement between 150 to 200 percentage points. The retailer also said its operating costs will grow only 2% and not 3.5% as previously projected due to continued tight control of costs and capital expenditure.
The retailer said that its website performed well, even when processing many customer orders, and reached positive results in October and November. However, the delivery disruption in December offset gains and online sales for the quarter were 5.9% lower.
International sales were down 5.8% during the three months, as economic turbulence in Russia and the Middle East dragged franchise performance down, offsetting robust results in India.
Overall, group sales fell 1.6% during the quarter.
Marks and Spencer Group Plc gained 1.94% on Wednesday and closed at GBX 463.20 in London. On Thursday the stock dropped 3.93% to trade at GBX 445.00 at 13:08 GMT, marking a one-year increase of 0.02%. The company is valued at £7.57 billion.
According to the Financial Times, the 25 analysts offering 12-month price targets for Marks and Spencer Group Plc have a median target of GBX 500.00, with a high estimate of GBX 550.00 and a low estimate of GBX 350.00. The median estimate represents a 7.94% increase from the last price.
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