The retail note - 25 May 2017
Stephen Springham, Head of Retail Research, breaks down the latest sector headlines.
4 minutes to read
- A flurry of retailer results over the last week giving a generally positive, but cautious, picture. On the positive side, B&M reported annual sales of £2.4 billion, up 19.4% on the previous year. Like-for-like sales in the UK increased 3.1% with sales in Q4 up 2.9%. Over the year, the business opened 53 new stores in the UK, with a further 40-50 planned for next year. The ultimate target store-count for the UK has been revised up from 850 to at least 950 outlets.
- Halfords and Pets at Home also reported strong figures. Dispelling earlier fears of a profit warning, Pets at Home saw like-for-like sales rise 1.5% in the year to 30 March 2017. Merchandise sales were up 0.8% to £716.7m, while food revenue grew 3.3% to £395.1m. Retail sales at Halfords in the 52 weeks to 31 March 2017 reached £938.4 million, up 8.1% on a total basis and 3.1% on a like-for-like basis compared to the previous year. Within the retail division, motoring sales increased 2% on a like-for-like basis, while car maintenance revenues increased 3.1%. Cycling sales increased 5.1% on a like-for-like basis and 18.2% on a total basis.
- Likewise, Dixons Carphone saw full-year sales up 9% overall and 4% on a like-for-like basis. Fourth quarter revenue grew 6% overall and 2% on a like-for-like basis. Kingfisher fared less well (group sales on a constant currency basis during the first quarter to 30 April 2017 were up just 0.9% overall and 0.6% on a like-for-like basis), but this owed more to a poor performance in France. Sales in the UK & Ireland increased 1.5% to £1.2 billion, up 3.5% on a like-for-like and constant currency basis. The growth was fuelled by Screwfix which grew sales by 20.3% to £362m while sales at B&Q fell 4.4% to £908m, reflecting the completion of the store rationalisation programme.
Stephen Springham, Head of Retail Research:
Tumbling profits, clothing sales continuing to go backwards at a rate of knots, even food reporting a negative like-for-like sales figure. Store closures, retreats from under-performing international markets. The knives were already drawn in advance of Marks & Spencer’s year-end results this week and the media were never going to let perspective stand in the way of a bad story.
Admittedly, it was hard to pick out too many positives from the figures themselves. CEO Steve Rowe pointed to the fact full-price sales were up 2.7% for the year as a whole and that the equivalent rise was 11% in the second half. Rather than a desperate attempt to tease out one crumb of comfort, this is actually a very important metric, reflecting a strategic, conscious and necessary shift away from promotional activity. By the time M&S enters its summer Sale it will have had 91 full-price days – the longest run for a decade. Scaling down promotional activity has already prompted a 105 bps improvement in gross margin. Less tangibly (but far more significantly) this strategy is a positive step towards restoring value and trust in the M&S brand. Like-for-like sales declines of 5.9% (in Q4) and 3.4% (for FY) need to be put in this context.
As has become the norm, the food business outperformed its general merchandise counterpart, reporting annual growth of 4.2%. However, even here the detractors were able to focus on a 2.1% fall in sales (-0.8% like-for-like) in Q4. The perspective needed here is that the Q4 figures this year did not include Easter, whereas the comparables from the previous year did. The recent retail sales figures from the ONS shed light on how the timing of Easter can massively distort spending patterns – retail sales growth in April was 180-190 bps higher than in March. Notionally applying this distortion to M&S food figures probably gives a much truer – and better – indicator of underlying performance.
The media inevitably focussed on the worst number of all – a 63.5% decline in pre-tax profit to £176.4m. But this needs to be put into the context of a business that is on a significant mission of self-help. Before the impact of adjusted items (£437.4m) related to the restructuring, pre-tax profit fell by a more modest 11% to £613.8m. Commentators lambasting the profit performance and at the same time bewailing the limitations and slow pace of the clothing and home floorspace refurbishment programme (25% of space over the next five years) simply do not understand the cost implications of what is admittedly a long-overdue exercise.
In many respects, the M&S figures this week were an exercise in not necessarily taking hard figures at face value. Perspective is a wonderful thing, but there are still many questions M&S needs to answer.