Even though the 130-year-old retailer felt the strain of volatile consumer habits this autumn, with analysts previously estimating falls of 3.7% in like-for-like sales of its general merchandise. The first half results have beat expectations. Sales have risen by 1% to £4.9 billion and underlying profits lifted 2.3% to £268 million.
Shares in Marks and Spencer Group Plc have jumped nearly seven percent in early morning trading after the half year results for 26 weeks were published.
Within Clothing, Womenswear performance continues to improve with growth in full price sales and increasingly positive feedback from M&S customers. However, the recent market conditions remain challenging, with unseasonal weather resulting in high levels of promotional activity across the market. The company’s main focus continues to be on driving gross margin improvement.
They further announced that the Food business continues to outperform the market with a higher number of new Simply Food stores planned to open over the next three years, up to 200 from the previous 150.
M&S food accounts for 55% of the company’s sales. The retailers’ continuing reputable ‘high quality’ tag remains as the formidable force behind their name. Which as a nation, we identify strongly with ‘Britishness’, and this is unlike any other high street brand.
The M&S.com sales trend improved through the period, with the updates made to the new platform driving increased customer satisfaction and an improving conversion rate since launch. The company remains on track to return to growth ahead of the peak trading period.
Within the International business, M&S have delivered sales and profit growth in their Owned business, despite currency headwinds and seasonal conditions across Europe. However, Franchise business has been impacted by currency and political issues in the Middle East region and lower shipments, which M&S expect to continue into the second half of this year.
Higher gross margin and lower than previously guided cost growth will deliver strong full year cash generation, building on the increase in free cash flow last year. The company is encouraged by the improvement to date and believe that it is now appropriate to use part of this increased cash flow to raise modestly the interim dividend by 0.2% to 6.4% per share.
Chief Executive Marc Bolland replaced Stuart Rose in 2010 and pledged to increase profits with a £2.3 billon investment. His strategy was to re-brand the store into a multi-national retailer, with a new infrastructure, new website and revised clothing ranges.
More recently, changing consumer habits have allowed for consistently high performing high street stores like Next, M&S’s biggest rival, to suffer an unexpected slump of -4% in clothing sales due to factors such as warm weather.
As a cash generative business, the food division of Marks and Spencer has grown four years in a row. A bright spark for the M&S brand, with a share of 6% in the chilled and fresh food market and 21 million customers.
M&S chief executive Marc Bolland said: “M&S delivered sales growth and increased profit in the first half despite a tough market, particularly in September. We are pleased with the progress we have made against our key priorities for the year: general merchandise gross margin, improving womenswear, driving food growth and cash generation.”
He went on further to say; “Despite some improvement in consumer confidence, market conditions continue to be challenging. As a result, we remain cautious about the outlook for the remainder of the year. However, we are confident that we are well set up for the key Christmas trading period.”
The company will update on their third quarter sales on 8 January 2015.