John Dixon resigned from his position as head of Marks and Spencer’s (LSE: MKS) general merchandise division last Thursday. Dixon, who had spent nearly 30 years at the company, had done much to revive sales at the company’s struggling clothing and homewares business. Replacing him as head of general merchandise is Steve Rowe, previously head of food at the retailer.
Like-for-like general merchandise sales, which had grown by 0.7% in the three months leading up to 28 March, slipped back into negative territory in its most recent quarter. In the 13 weeks leading to 27 June, like-for-like sales declined 0.4%. This means that underlying sales growth has only been positive for a single quarter over the past four years.
Analysts are split on whether Rowe will be able to continue to build on Dixon’s progress in turning around the struggling division. Although Rowe has delivered consistent sales growth in its M&S’s food division, some analysts are concerned that another potentially unnecessary restructuring could derail the progress already made by Dixon, and delay the division’s eventual return to growth.
And poor like-for-like sales figures in its most recent quarter shows that reviving general merchandise sales could be more difficult than previously anticipated. International sales, which have picked up slightly in the most recent quarter, remains under pressure because of exposure to Russia and the strengthening of the pound. With only food and online sales delivering consistent growth, M&S’s overall growth will likely be slow.
The management reshuffling has not boded well for M&S’s share price, with its shares having fallen by 1.7% to 536 pence, since the announcement of Dixon’s departure.
Sainsbury’s and Morrisons
Morrisons (LSE: MRW) has seen sales growth bounce back into positive territory, with sales in the 12 weeks leading up to 21 June expected to have grown by 0.6%, according to data from Kantar Worldpanel. Sainsbury’s (LSE: SBRY), on the other hand, is expected to see a fall in sales of 1.3% over the same period.
An increasing number of analysts seem to think that the supermarket sector is past the point of peak disruption from the discounters. Declines in like-for-like sales appear to be slowing and gross margins are flattening. Although the supermarkets are still a long way away from returning to its historic levels of profitability, they are at least moving in the right direction.
Sainsbury’s stronger brand differentiation sets it apart from the other supermarket chains, and this should allow the company to outperform its rivals. As the other supermarkets have pulled back on the number of products they offer, and reduced their focus on quality, Sainsbury’s differentiation has only strengthened. Although it has also had to lower prices, Sainsbury’s has been better at defending its gross margins and has seen less of a decline in like-for-like sales than its peers over the past few year.
Sainsbury’s is also relatively attractive on its forward P/E ratio of 12.8. This compares favourably with Morrisons and M&S, which respectively trade at 16.2 and 15.4 its expected earnings.
