Fourth-quarter sales are dented by supply problems.
Sales at Marks & Spencer (LSE: MKS) fell short of fourth-quarter expectations, but for an unusual reason -- too many people wanted to buy the the group's clothes. Or rather, problems with supplies meant that the demand for some lines could not be satisfied.
Britain's largest clothing retailer, it seems, could have shifted three times the 100,000 cardigans and jumpers it sold from its most popular lines during the quarter, but failed to buy in enough stock. The problem, so M&S said this morning, was temporary, and full-year sales targets should still be hit.
But it did mean that like-for-like sales in the clothing and homeware departments were down by almost 3%, though a 1% rise in food sales saved the day a little and brought overall like-for-like sales back to a small fall of 0.7%. Taking into account new openings, overall group sales advanced by 0.8%.
And echoing the growing influence of online markets, sales at M&S Direct grew strongly, by 23%.
But the real question is how well is M&S doing against its plan to revamp the business?
How's the strategy going?
Within the 2011 annual report, chief executive Marc Bolland reiterated his strategy of strengthening the M&S brand in the UK, increasing the size of the group's UK selling space and expanding as a multi-channel business.
Part of that UK refocus meant recapturing some of the fashionable clothing market the group had been losing to others, as many of the pretty young things were seeing M&S as being somewhat out of touch with what young people want.
This quarter's figures present mixed messages on that front. On the positive side, not being able to meet the demand for its clothing does suggest that M&S is actually selling the items people want. But it's hard to know how much we can rely on claims that the chain "could have sold three times as much".
Even setting the supply problems aside, growing like-for-like sales is not an easy proposition, and some will be disappointed that M&S hasn't achieved more at this stage. Against the full-year sales growth of 4.3% the company recorded last year, this quarter's 0.8% growth does not look all that impressive.
Multi-channel, international
Growing into multi-channel retail does seem to be paying off, with the launch of the M&S Outlet online store contributing to that nice 23% growth. But that is from a relatively small base, and we don't have actual sales volumes yet, so that will be something to scrutinise when the full-year results are released next month.
Strengthening international sales channels is another of the 'building blocks' that Mr Bolland expects to be in place by 2013, and we have mixed results there as well. While double-digit growth was claimed for India and China, and strong trading in the Middle East was reported, the economic problems of the eurozone are still hurting European sales, with Ireland and Greece in particular being badly hit.
But the UK revamp is still in its early days, with only around 70 of M&S's 700-plus stores having been refitted so far, and the early signs are that customers have "responded favourably". The new store format will now be rolled out across the rest of the country, with the expected cost having fallen by £100m from original estimates of £600m.
How's the show so far?
What are we to make of all this? Profit expectations for the full year should be met, but it looks like that will be at least partly achieved by cost savings rather than by revenue growth. And though current economic conditions are perhaps not ideal for a bounce back to form, at this stage in M&S's much vaunted recovery strategy, it's hard not to be a little disappointed.
The market seems to share that feeling today, too, with the share price down 3% to 357p during this morning's trade. The optimism that saw the price grow strongly since the start of the year, to peak at 390p, has clearly subsided, and the price has been falling since the start of this month.
Full-year results, which should be with us on 22 May, are unlikely to hold any surprises, and it's looking like 2012-13 is going to be a crunch time for M&S's strategic turnaround. Presumably Mr Bolland will make sure he stocks enough cardies and jumpers, though.
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