COVID-19 Lockdowns Weigh on Q3 Revenue at Marks & Spencer
LONDON — Marks & Spencer saw its overall revenue shrink 8.4 percent to 2.77 billion pounds in the key third quarter due to lockdown measures in the U.K., and a double-digit decline in clothing and home sales, despite a robust online business.
The food division grew, as M&S was one of the few retailers that could keep its physical stores open during pandemic-related closures in the U.K., along with supermarkets including Sainsbury’s, Tesco and Waitrose.
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U.K. sales in the third quarter were down 8.2 percent to 2.53 billion pounds, with food sales up 2.2 percent and clothing and home down 25.1 percent. Sales in the international division fell 10.4 percent in the three months to Dec. 31, 2020.
Online sales grew 47.5 percent, due largely to the retailer’s new deal with Ocado’s grocery home delivery service and an overall shift to online shopping during lockdown.
Shares were down 1.7 percent to 1.39 pounds in mid-morning trading following the release of the results on Friday. The shares were down 2.4 percent to 1.38 pounds at the close of trading.
Steve Rowe, chief executive officer, said given the on-off restrictions and distortions in demand over the three months, “our trading was robust over the Christmas period. Beneath the COVID-19 clouds we saw a very strong performance from the food business, including Ocado Retail and a further acceleration of clothing and home online,” he said.
Rowe added that near-term trading remains “very challenging,” but the retailer is continuing to accelerate change to ensure the business emerges from the pandemic “in very different shape.”
The clothing and home business suffered mainly from an in-store sales decline of 46.5 percent, partly offset by strong online sales growth of 47.5 percent, the company said. During lockdown, M&S retail stores had to cordon off large parts of the shop floor that housed men’s, women’s and children’s clothing, accessories and footwear.
The company said that during the three-month period, the sales mix remained “heavily biased” to COVID-19-influenced product such as sleepwear and leisurewear. The store said major seasonal promotions were removed during lockdown and, as a result, full-price sales were higher than in recent quarters. Online orders overall more than doubled in the period.
Internationally, M&S said it took “targeted actions” to support the doubling of online sales, while trading trends improved in the markets where it owns stores.
The company said the new free-trade agreement with the European Union means it will not incur tariffs on its core U.K. sales.
“Potential tariffs on part of our range exported to the EU, together with very complex administrative processes, will significantly impact our businesses in Ireland, the Czech Republic and our franchise business in France which we are actively working to mitigate,” the company said.
M&S added that the announcement earlier this week of a lockdown across the U.K., potentially enduring until Easter in early April, “will impact store sales and we are continuing to actively manage our clothing and home stock and our store cost base accordingly.”
Royal Bank of Canada said the third-quarter results were better than expected with the food division performance broadly in line with its estimate, and clothing and home better, particularly full-price sales.
“We think M&S has kept tight control of stock and is on course to end the financial year with lower net debt, even with a national lockdown lasting the whole of its Q4,” the bank said, adding that it sees “some downside pressure to consensus earnings forecasts, due to the national lockdown in the fourth quarter, however the trends for M&S into fiscal year 2022 look more encouraging.
The bank said, overall, it sees an opportunity for M&S to differentiate in food and to benefit from “improved customer value for money perception, plus longer term from its joint venture with the food delivery service Ocado Retail. M&S’ clothing outlook is tough, so it needs to flex its cost base while it works on improving its systems and supply chain.”
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