M&S Clothing Sales Hit By Refusal To Discount

Marks and Spencer has said its decision not to join rivals in discounting has "affected" sales in its troubled clothing division.

The retailer announced a 1.2% drop in like-for-like sales in its general merchandise business over the 26 weeks to 26 September.

It (Other OTC: ITGL - news) said that while its decision to maintain clothing margins in its second quarter damaged sales, underlying - or trading - profits rose 6% over the first half as a result.

However, it reported a pre-tax profit of £216m for the period - down 23% on the same period last year - reflecting store improvement programme costs and some store closures.

M&S said trading conditions were tough as rivals slashed prices to shift seasonal stock in late summer because of cooler, wetter weather.

M&S said its food business outperformed the UK market - with like-for-like sales rising 0.2% while its website sales rose 34.2% despite recent technical difficulties which M&S blamed on an internal error.

Chief executive Marc Bolland said: "We delivered good underlying profit growth in the first half and made strong progress against our key priorities.

Our food business again outperformed the market by over 3% points as our focus on quality and innovation continues to set us apart.

"In general merchandise we decided to improve profitability by focusing on gross margin, delivering another significant increase, which in part resulted in slightly lower sales.

"As a consequence of good performance and strong cash generation we have decided to increase our dividend."

M&S said that while it saw some improvement in consumer confidence, market conditions continued to be "challenging" in both the UK and international markets.

"Our short term priorities remain the same: Food sales growth, general merchandise gross margin improvement, improved general merchandise performance and strong cash generation," it added.

On the question of whether M&S planned to join some other retailers in warning of selected price increases to take account of the National Living Wage next year, the company confirmed it was already paying its permanent customer assistants more than the £7.20 hourly rate.

The company's share price, which has risen by more than 30% over the past 12 months, was up by 3% in early trading on the FTSE 100 on Wednesday.