Dire Christmas forces M&S to write off £40m of stock

Marks & Spencer yesterday blamed mountains of stock for issuing a swingeing profits warning after its worst Christmas for six years.

The group was forced to rush out its trading statement after it struggled to clear excess stock despite breaking with tradition and holding two pre-Christmas sale days. It was not due to report until Wednesday.

M&S said the impact of clearing the extra clothing had blown a £40m hole in its second-half profits. It also admitted underlying sales had been even worse than analysts had expected, despite the boost from the two "20 per cent" off days.

It now expects pre-tax profits for the year to March to be between £600m and £625m against previous expectations of £645m to £680m.

Underlying group sales fell 5.6 per cent in the six weeks to 1 January. Even this figure masked an 8.5 per cent decline in total underlying clothing and home sales. The group clocked up its fifth consecutive quarter of like-for-like sales declines, with a 6 per cent fall in the 13 weeks to 1 January.

Stuart Rose, the chief executive, said: "I'd have liked to have reported better figures, but am I surprised by them? No." He pinned the blame for the profits warning firmly on the stock commitments that he inherited from his predecessor, Roger Holmes. "The bulk of the problem was that we just had too much. We were over-egged. We're not just talking about tens of millions here but quite a bit more," he said.

He estimated the two mega-sale days, in late November and early December, had contributed an extra 1 per cent in sales - or about £10m. "I took the view we needed to clear the decks for spring, which is what we have done."

Mr Rose defended the decision to hold the two sales days, insisting that "with hindsight I'd do it again". He added: "I was attempting to liquidate that stock at 20 per cent rather than leave it for after Christmas at 50 per cent." Total clothing sales fell 4.9 per cent during the six-week period.

But some analysts queried the impact of the sales, arguing they should have added much more than £10m to the top line. Tony Shiret, at Credit Suisse First Boston, said: "Accordingly, the declines disclosed will, in our view, have been materially worse than the figures noted above.

"In other words we believe that even these poor figures understate the true extent of disarray at M&S."

Mr Rose's strategy for turning around the troubled retailer, which turned down a mooted 400p-per-share bid from Philip Green last summer, hinges on cutting its forward stock commitments so it can react more quickly to current trends.

M&S has 25 per cent less forward stock commitments than it had last January. "That's a very good place to be. It's the first time this business has been in this position for a number of years," Mr Rose said. "If sales look encouraging I want the girls and boys to be able to get on the phone on a Monday and say 'more stock', not do what they've been doing since I got here, which is to say, 'cancel stock, cancel stock, cancel stock'."

The group's home furnishings division continued to haemorrhage sales, falling another 23.3 per cent over the festive period. All of the goods designed under Vittorio Radice's brief tenure have been sold, Mr Rose said, adding: "I hope we have reached the low point and we will now start building again."

Despite the collapse in sales, shares in M&S rose 9.25p to 348p on speculation that Mr Green could return for a third assault. His six-month ban on bidding for M&S ends next month.

A glimmer of hope came from M&S's food arm, which has also been fading. Over Christmas, it limited its like-for-like sales decline to 1.7 per cent. Underlying food sales fell 2.9 per cent during the third quarter.

Elsewhere, Big Food Group, which has agreed to a £326m takeover by Baugur, revealed like-for-like sales at its Iceland chain fell 3.5 per cent over the five-week Christmas period. Waitrose, which is owned by John Lewis, fared better with a 50 per cent jump in sales during the week to Christmas Day.

Meanwhile, J Sainsbury woes deepened ahead of its trading update next week after it emerged a technical glitch had left some of its shelves bereft of fresh produce in some key central London stores.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Customer Service Administrator

£13000 - £15000 per annum: Recruitment Genius: Are you passionate about custom...

Recruitment Genius: Dialler Administrator

£22000 - £25000 per annum: Recruitment Genius: Main purpose: Under the directi...

Ashdown Group: Contracts Manager - City of London

£35000 - £37000 per annum + benefits : Ashdown Group: Contracts Manager - City...

Guru Careers: Tax Manager / Accountant

£35 - £50k DOE: Guru Careers: A Tax Manager / Accountant (ACA / CA / CTA) is n...

Day In a Page

Blairites be warned, this could be the moment Labour turns into Syriza

Andrew Grice: Inside Westminster

Blairites be warned, this could be the moment Labour turns into Syriza
HMS Victory: The mystery of Britain's worst naval disaster is finally solved - 271 years later

The mystery of Britain's worst naval disaster is finally solved - 271 years later

Exclusive: David Keys reveals the research that finally explains why HMS Victory went down with the loss of 1,100 lives
Survivors of the Nagasaki atomic bomb attack: Japan must not abandon its post-war pacifism

'I saw people so injured you couldn't tell if they were dead or alive'

Nagasaki survivors on why Japan must not abandon its post-war pacifism
Jon Stewart: The voice of Democrats who felt Obama had failed to deliver on his 'Yes We Can' slogan, and the voter he tried hardest to keep onside

The voter Obama tried hardest to keep onside

Outgoing The Daily Show host, Jon Stewart, became the voice of Democrats who felt the President had failed to deliver on his ‘Yes We Can’ slogan. Tim Walker charts the ups and downs of their 10-year relationship on screen
RuPaul interview: The drag star on being inspired by Bowie, never fitting in, and saying the first thing that comes into your head

RuPaul interview

The drag star on being inspired by Bowie, never fitting in, and saying the first thing that comes into your head
Secrets of comedy couples: What's it like when both you and your partner are stand-ups?

Secrets of comedy couples

What's it like when both you and your partner are stand-ups?
Satya Nadella: As Windows 10 is launched can he return Microsoft to its former glory?

Satya Nadella: The man to clean up for Windows?

While Microsoft's founders spend their billions, the once-invincible tech company's new boss is trying to save it
The best swimwear for men: From trunks to shorts, make a splash this summer

The best swimwear for men

From trunks to shorts, make a splash this summer
Mark Hix recipes: Our chef tries his hand at a spot of summer foraging

Mark Hix goes summer foraging

 A dinner party doesn't have to mean a trip to the supermarket
Ashes 2015: With an audacious flourish, home hero Ian Bell ends all debate

With an audacious flourish, the home hero ends all debate

Ian Bell advances to Trent Bridge next week almost as undroppable as Alastair Cook and Joe Root, a cornerstone of England's new thinking, says Kevin Garside
Aaron Ramsey interview: Wales midfielder determined to be centre of attention for Arsenal this season

Aaron Ramsey interview

Wales midfielder determined to be centre of attention for Arsenal this season
Community Shield: Arsene Wenger needs to strike first blow in rivalry with Jose Mourinho

Community Shield gives Wenger chance to strike first blow in rivalry with Mourinho

As long as the Arsenal manager's run of games without a win over his Chelsea counterpart continues it will continue to dominate the narrative around the two men
The unlikely rise of AFC Bournemouth - and what it says about English life

Unlikely rise of AFC Bournemouth

Bournemouth’s elevation to football’s top tier is one of the most improbable of recent times. But it’s illustrative of deeper and wider changes in English life
A Very British Coup, part two: New novel in pipeline as Jeremy Corbyn's rise inspires sequel

A Very British Coup, part two

New novel in pipeline as Jeremy Corbyn's rise inspires sequel
Philae lander data show comets could have brought 'building blocks of life' to Earth

Philae lander data show comets could have brought 'building blocks of life' to Earth

Icy dust layer holds organic compounds similar to those found in living organisms