M&S is accelerating its Simply Food store opening programme, adding an extra 50 stores to add to the 150 it outlined as part of a three-year plan to 2016 last year.
The updated full-year guidance comes as the food division continues to outperform the market. Despite “intensifying” competition, food sales rose 3.6% and 1% on a like-for-like basis in its half-year results for 26 w/e 27 September, boosted by the introduction of 1,000 new lines, including its new ‘Taste’ range of ready meals, and a new frozen ready meals range.
Gross margins also improved by 25 basis points due to operational cost efficiencies and better on-shelf availability.
There was also good news in terms of gross margins on the GM side as operating costs fell and full-price sales improved in womenswear.
While “unseasonal conditions” in September adversely affected sales in the first half – like-for-like GM sales fell 2.9% and like-for-like clothing sales were down 2.2% - gross margins increased by 150 basis points, ahead of full-year guidance of +100 basis points, due to significant sourcing gains and lower promotional activity.
M&S has advised that operating costs for the full-year will fall from +4% to +3.5%.
City analyst Nick Bubb said: “The bull case for M&S has always rested on gross margin growth potential in clothing, and the scope for cash returns to shareholders, so M&S has delivered what they want today.”
Overall group sales rose 1% to £4.9bn, but fell 0.7% on a like-for-like basis. Pre-tax profits rose 2.3% to £268m on an underlying basis. However, CEO Marc Bolland warned that market conditions remain tough.
“We are pleased with the progress we have made against our key priorities for the year: GM gross margin; improving womenswear; driving food growth; and cash generation. We remain cautious about the loutlook for the remainder of the year. However we are confident that we are well set up for the key Christmas trading period.”
Free cash flow was up £73m not including dividend payouts and share transactions. The dividend was raised to 0.2p to 6.4p. Capex was in-line with its guidance at £176.8m.
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