March 27, 2015 / 12:17 PM / 4 years ago

Marks & Spencer expected to show improving trend for non-food sales

LONDON (Reuters) - British retailer Marks & Spencer (MKS.L) is expected to report an improving trend for its non-food business as it starts to put its online distribution problems behind it, despite a drop in sales for the 15th quarter in a row.

Shirts from the new autumn/winter women's wear collection are displayed at Marks & Spencer's in central London July 25, 2013. REUTERS/Olivia Harris

Marc Bolland, CEO since 2010, has spent billions of pounds addressing decades of under-investment at M&S, overseeing the redesign of products, stores, logistics and its website. But a new clothing team he set up in 2012 has so far failed to deliver a sustained increase in sales.

However, a food business outperforming the wider grocery market and improving profit margins both in non-food and food have kept investors onside, with the group’s share price rising by 27 percent over the last six months and 16 percent in the last year.

The shares were trading around 535.50 pence on Friday, putting the stock on a forward price-earnings ratio of 16.4, in line with that of its nearest rival, Next (NXT.L), according to Thomson Reuters data.

The 131-year-old firm, Britain’s largest clothing retailer by sales, publishes fourth-quarter trading figures on Thursday, when it is expected to report a fall in sales of general merchandise - clothing, footwear and homewares - of 1.2 percent from shops open over a year, according to a consensus of 10 analysts’ forecasts compiled by the company.

That compares with a third-quarter decline of 5.8 percent, which reflected unseasonal weather in October and November and disruption at its e-commerce distribution center in December.

UK consumers are benefiting from low inflation, increasing real wages, healthy credit markets and low unemployment.

However, Next, Britain’s second-biggest clothing retailer, said last week there was little evidence consumers were spending any increases in disposable income on clothes.

M&S has said its trading strategy is to focus on gross margin, rather than chase unprofitable sales. It has predicted a full-year increase in non-food gross margin of 1.5 to 2 percentage points, driven by better buying from suppliers and less discounting.

M&S’s food business - which contributes over half of group sales and about a third of profit - is performing much better than clothing, with analysts on average forecasting fourth-quarter like-for-like sales up 0.3 percent.

That would compare with third-quarter growth of 0.1 percent.

The food business is benefiting from product innovation and a focus on providing for special occasions.

M&S has forecast a full-year rise in food gross margins of 0.1 to 0.3 percentage points.

The group is also expected to say that its international business continues to be hurt by currency and macroeconomic issues across its Middle East and Russia franchise region.

Analysts are on average forecasting the company has made a pretax profit of 641 million pounds ($954 million) in the year just ending, up from 623 million pounds in the previous year — the first rise in four years. Full-year results will be announced on May 20.

(Story refiles to fix error in text formatting)

Editing by Greg Mahlich

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