8th Jul 2014 08:54
LONDON (Alliance News) - British retailer Marks and Spencer Group PLC Tuesday reported a hefty drop in online sales for the first quarter of its financial year, which the retailer blamed on the transition to its new website platform and a cutback in promotions both online and in store.
Ahead of its annual general meeting later Tuesday, M&S reported an 8.1% fall in sales of its online business, M&S.com, for the 13 weeks to June 28.
M&S told journalists Tuesday that the "settling in" of the new website has held back re-registration and conversion rates.
It said that fewer promotions online and in its stores also hit sales.
"In line with our increased focus on margin, we were less promotional, both online and in stores. While this has affected the sales performance, particularly online, we are on track to deliver our full-year gross margin guidance," said Chief Executive Marc Bolland.
In May, M&S warned that the rebuild of online customers, following the transition to its new website platform back in February, would take up to six months to "settle in", meaning that growth should pick up in the second half of the year.
M&S is hoping the new website platform will encourage sales growth in its general merchandise business, and said Tuesday that it expects online sales to return to growth ahead of its "peak trading period", which M&S said is November and December.
"It will take some time for the M&S.com business to come back. We have recently seen improving trends, and ahead of peak, we expect it to be back in growth," said Bolland.
The retailer said it remained cautious about the outlook for the business due to competition and promotional pricing in the UK retail sector, although it has seen some improvement in consumer confidence.
"Our full year guidance remains unchanged. Despite some improvement in consumer confidence, market conditions remain challenging," M&S said in its statement Tuesday.
Total sales across the group rose 2.3% in the quarter, while UK sales were up 2%, and on a like-for-like basis up 0.3%.
Over the last decade, the retailer has seen its food business boom, while its clothing and home furnishing ranges have struggled. Food sales in the quarter grew 4.2%, and were up 1.7% on a like-for-like basis.
"We launched some 700 new products giving customers more choice than ever. We are on track with the pipeline of 150 new Simply Food stores opening over the next three years," M&S said.
While M&S said it has seen an improving trend in clothing sales and womenswear, with sales up in the quarter but still down on a like-for-like basis, the company's general merchandise business, which includes both clothes and its home offering, remains weak and in negative territory.
General merchandise sales were down 0.8% in the quarter, and down 1.5% on a like-for-like basis, part of which was caused by the move to the new website, which M&S said particularly hit sales of its homeware product offering.
Prior to M&S's transition to a new online website, the company's online and international businesses had been driving the business, alongside food.
In the quarter, international sales were up 4.7%, which M&S said was supported by new international store openings. However M&S said trading conditions in Ireland remain challenging, and trading in the Middle East was held back by the timing of shipments to its franchise partners.
The retailer recently came to the end of a three-year plan to turnaround the business and transform the company into an "international multi-channel retailer", having pumped money into the new company website, and expanding its store portfolio overseas. However, it has failed so far to turnaround its general merchandise business despite the success of its food offering.
Rival retailer Next PLC overtook M&S in terms of underlying pretax profit for the first time last year, after M&S reported its third consecutive annual drop in a closely-watched profit measure, hit by heavy discounting in the UK and continued weakness in general merchandise and clothing sales.
"Overall, we deem this to be another disappointing update from the company, with general merchandising in the UK continuing to weigh heavily upon the group?s growth prospects," said Shore Capital analyst Clive Black in a research note Tuesday.
"All in all though, M&S stock is not likely, to our minds, to materially appreciate for some time. First and foremost, it has to inject some positive momentum into its UK general merchandise sales," Black added.
M&S shares were off 0.7% at 430.30 pence Tuesday morning.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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