Retailers hit by Christmas slowdown

Retailers hit by Christmas slowdown
By Andrea Felsted, Senior Retail Correspondent
Last updated: January 9, 2014 FTimes

A trio of Britain’s biggest retailers underlined the challenges on the high street with Wm Morrison, Marks and Spencer and Tesco all reporting disappointing Christmas trading.

In an unexpected update, Wm Morrison reported terrible Christmas trading, with like-for-like sales down by 5.6 per cent in the six weeks to January 5, and cautioned that full-year profits would be towards the bottom of the range, putting pressure on Dalton Philips, chief executive.

Mr Philips had said he expected positive trading over Christmas, after more than a year of underlying sales declines.

The update sent shares in Morrison down 5.7 per cent to 239p as shares across the supermarket sector fell. Tesco, which also reported a fall in like-for-like sales, fell 3 per cent to 318p and J Sainsbury, which reported a small rise in like-for-like Christmas sales on Wednesday, was down 2.3 per cent.
Marks and Spencer also announced a worse than expected 2.1 per cent fall in sales of clothing and homewares in its third quarter.

The performance compares with analysts’ forecasts that ranged from flat sales of general merchandise from stores open at least a year, to a decline of 1.5 per cent.
It also follows a decline of 3.8 per cent in the third quarter of the 2012-13.

Marc Bolland, chief executive, blamed an “exceptional, unusual and unseasonable” October together with heavy discounting on the high street.

He insisted that M&S had held its nerve, but had promoted in response to the market, despite the retailer running a series of promotions throughout the autumn.

“We were not the one that stirred the pot. We were the ones that clearly responded,” he said.

The third quarter decline represents the 10th consecutive quarter of underlying clothing falls, despite M&S revamping its womenswear ranges in an efforts to revive its fortunes.

However, Mr Bolland, responding to questions about his own future, said: “It’s all about the business for me, and, and I think the business is taking the right steps.”

However, M&S said like-for-like general merchandise sales rose 0.5 per cent in the eight weeks to December 24, after it promoted heavily.

Concern has been rising over clothing trade at M&S after the retailer began discounting heavily before Christmas.

It also comes after Mr Bolland was upbeat when M&S reported interim results in November, sending the shares up 5 per cent on the day. On Thursday its shares rose 2 per cent to 454p.
Like-for-like food sales rose 1.6 per cent in the third quarter, below the consensus of analysts’ forecasts of a 2 per cent rise.

However, Mr Bolland insisted the food performance was “stellar”.

Tesco, Britain’s biggest retailer which has been battling to turn round its UK business, also said UK like-for-like sales fell 2.4 per cent in the six weeks to January 4.

Brokers to Tesco had forecast a 2 per cent decrease in like-for-like sales.Philip Clarke, chief executive described the performance as “disappointing”.Tesco said profit for the year would be in line with “current market expectations” but said the range had been lowered to between £3.16bn and £3.42bn.
“With hindsight, we were a little to optimistic,” said Laurie McIlwee, finance director.The reduction in guidance will put further pressure on Mr Ilwee, who has become a lightning rod for some investors, concerned that the group does not have a good enough handle on its forecasts.

Some senior investors have been concerned that Tesco will be forced to cut prices aggressively to counter the rise of the so-called hard discounters, Aldi and Lidl, who are making rapid inroads into the UK grocery market. This could lead to a further reduction in the operating margin, from the current 5.2 per cent,
already lowered in a profit warning two years ago from its historic level of 6 per cent. Mr Clarke, said: “The margin doesn’t have to be 5.2 per cent forever.”