Marks & Spencer Sales Slump Worsens, Adding to CEO Challenge

(Bloomberg) -- Marks & Spencer Group Plc reported its steepest drop in clothing sales in eight years as new chief Steve Rowe's efforts to win back customers with cheaper prices on leggings and fewer clearances came at a cost.

Same-store sales of clothing and home goods fell 8.9 percent in the 13 weeks ended July 2, the London-based company said Thursday, worse than the 5 percent drop analysts expected. About 5 percentage points of the decline was due to a delayed clearance sale and an earlier Easter holiday in 2016, Rowe said. The retailer cut prices on about 1,000 products during the quarter.

“These are not the numbers I want to see, not by any stretch,” Rowe said on a conference call. “But they are the numbers I expected to see. We're pleased with how the re-pricing is going.”

Having succeeded Marc Bolland in April, Rowe is seeking to reverse a clothing sales slump stretching back four years. His goal is to reduce prices permanently and convince customers they are getting a good deal shopping at M&S, which for years has been losing out to budget competitors such as Primark. His cause hasn't been helped by consumer confidence which he said remains “fragile” after the U.K.'s Brexit vote.

Marks & Spencer shares fell 1.2 percent to 290.7 pence at 9:50 a.m. in London, extending their decline this year to 36 percent.

“Just when you thought things couldn't get worse for M&S, they did, and then some,” John Ibbotson, director of consultant Retail Vision, said by e-mail. “Despite his best intentions, Rowe has not been able to stop the rot.”

The CEO said he's been encouraged by the response of customers to changes in the retailer's pricing as he seeks to compete better with the likes of Primark, which also reported results Thursday and has expanded outside the U.K. in recent years.

M&S is cutting the number of clearance sales to six from nine this year, and that will reduce to four next year. The price reductions made in the quarter reduced average selling prices by about 3 percent, the CEO said. Rowe pointed as an example to pairs of women's leggings, where sales volumes more than doubled after the price was cut to 15 pounds from 19.50 pounds.

“The actions we're taking are even more important in the context of the market we're seeing,” he said. “We're operating in uncertain times.”

Marks & Spencer doesn't expect any short-term impact from the U.K.'s Brexit vote and hasn't witnessed any further dip in consumer confidence since the referendum, he said.

The retailer's food unit boosted sales by 4 percent in the quarter, although same-store revenue declined 0.9 percent, missing analyst estimates.

Marks & Spencer maintained its full-year forecasts, including an expansion of 50 to 100 basis points in general-merchandise gross margins.

To contact the reporter on this story: Paul Jarvis in London at pjarvis@bloomberg.net. To contact the editors responsible for this story: Matthew Boyle at mboyle20@bloomberg.net.