M&S Struggles With Weak First-Quarter Sales But Budget Rival Primark Prospers
Marks & Spencer’s clothing division struggled in early part of 2016 but Primark reported sharp sales growth
The company’s sales in the U.K. fell 4.3% on a comparable basis for its fiscal first quarter ended July 2, missing analyst estimates, though the company said its full-year outlook was unchanged, with sales coming in flat. On Thursday, M&S shares rose 1.6% to end at £2.99 ($3.87) in London.
Comparable food sales in the first quarter slipped 0.9%. Sales in the clothing and home division, which has turned in a weak performance for several consecutive quarters, declined 8.9%, as M&S scaled back on price promotions in a bid to move products toward lower, more consistent pricing.
“We knew our actions would reduce total sales but we are seeing some encouraging early signs,” Chief Executive Steve Rowe said on a call with analysts.
One of the best-known names on the U.K. high street—Britain’s name for the main shopping drags in its towns and urban neighborhoods—M&S said consumer confidence had “weakened in the run up to the EU referendum” but added that “it is too early to quantify the implications of Brexit.”
Mr. Rowe said M&S’s change in strategy around promotions made it “very difficult to assess” the impact of the U.K.’s decision to leave the EU.
“On the day of the vote itself our footfall was down on that day as customers went to vote and that’s the only thing I can say about it,” said Mr. Rowe, who took the reins of M&S in April and has since set in place the strategy of reducing promotions while cutting everyday prices.
International sales, which represent around 10% of the group total, rose 6.1%, or 0.7% at constant currency.
By contrast, Associated British Foods ASBFY 1.41 % PLC, which owns budget clothing chain Primark, offered a brighter outlook for its full year and logged higher sales for the 40 weeks ended June 18. The company said its revenue rose 1%, or 3% excluding currency fluctuations. ABF shares were up 8.9% to end at £27.80 on Thursday.
Primark reported sales growth of 7% at constant currency in the first 40 weeks of its financial year, driven by increased selling space and high sales a square foot. That helped offset weak comparable sales in the third quarter that the company blamed on “unpredictable weather.”
Overall, the group’s third-quarter growth was 4% at constant currency and 7% at actual exchange rates.
In April, ABF warned of a “marginal decline” in adjusted earnings per share for the full year but on Thursday said the weak pound would translate into higher revenue from its international operations, and that it no longer expected earnings to decline.
For the next fiscal year, ABF said it would see both positive and negative impacts from the falling pound. Primark will see U.K. clothing margins squeezed by higher costs, since much of its costs are dollar-denominated, but margins in ABF’s British sugar business will benefit from lower costs. Separately ABF said group profit earned outside the U. K.—roughly 50% of the total—will be helped by the weak pound.
ABF said the underlying operating performance of the group during the third quarter was ahead of its expectations, boosted by an improvement in the sugar business.