(Bloomberg) -- A decline in sales of food and clothing is accelerating at Marks & Spencer Group Plc, showing why the U.K. retailer is speeding up its store-closing plans in an effort to shore up profitability.
Same-store sales in the company’s food and clothing operations fell more than analysts expected in the fourth quarter. Despite the weakness, M&S’s forecast for the current year is not as bleak as some investors expected, and the shares rose as much as 6.2 percent early Wednesday in London.
Under Chairman Archie Norman, the fixture of the U.K.’s downtown shopping districts is closing about one-third of its large stores, lowering prices and upgrading its e-commerce infrastructure. Meanwhile, competitors are giving it new headaches, with J Sainsbury Plc’s $10 billion acquisition of Walmart Inc.’s Asda threatening to intensify price competition in clothing and food. That’s on top of the more immediate pressures of soaring costs and stagnant demand afflicting all of the U.K.’s store-based fashion retailers.
“There are a number of structural issues to address and we are taking steps towards fixing these,” Chief Executive Officer Steve Rowe said in a statement Wednesday.
Same-store sales in the company’s clothing-and-home division fell 3.4 percent in the fourth quarter, more than double the rate of decline that analysts expected. Comparable sales in food, long the engine of growth for M&S as its apparel operations slumped, fell 0.6 percent.
“It’s worrying to see that M&S’s slowdown in food has continued,” TCC Global analyst Bryan Roberts said by email. “As retailers across the industry have invested more heavily in their premium and private-label offerings, M&S’s pricing has looked increasingly over the top.”
The retailer recorded one-time charges of 514 million pounds ($689 million) related to the store closings, cutting its pretax profit by 62 percent, to 66.8 million pounds, in the 52 weeks through March 31. In the last two years the retailer has recorded one-time charges worth almost a billion pounds.
This week M&S announced plans to close more than 100 stores that sell both clothing and food by 2022. The company wants a third of its clothing and home sales to be made online, up from about 18 percent now.
Short selling -- in which investors seek to profit from selling borrowed shares and later buying them back at a lower price -- has spiked in M&S shares. Nearly 16 percent of its stock is on loan, according to IHS Markit data. That’s the second-highest level of any company in the U.K.’s benchmark FTSE 100 index.
(Updates with shares.)
To contact the reporter on this story: Sam Chambers in London at schambers7@bloomberg.net
To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John J. Edwards III
©2018 Bloomberg L.P.
Advertisement