View the article online at http://citywire.co.uk/money/article/a872038
Marks and Spencer boss Marc Bolland steps down
Chief executive steps down after six years, as retailer reports disappointing Christmas clothing sales, although margins held up.
(Updated with fund manager comment) Marks and Spencer (MKS) boss Marc Bolland is to step down in April, the retailer has announced as it reported disappointing Christmas sales from its clothing division.
Bolland will retire in April after six years at the helm, handing over to Steve Rowe, executive director of general merchandise.
The announcement came as Marks and Spencer announced another weak Christmas for its general merchandise division, which houses its clothing business, with sales down 5.8% in the 13 weeks to 26 December.
But margins, a focus for Bolland during his tenure, held up, with the company predicting they would be at the top end of guidance.
Marks and Spencer blamed the UK's unseasonably warm winter for a fall in clothing sales, but said it was able to protect margins by refusing to get drawn in to 'unprecedented levels of promotional activity' mounted by its rivals.
'General merchandise sales were disappointing,' said Bolland. 'We continued to prioritise gross margin and held back from the heavy discounting seen across the market in the run-up to Christmas. As a result we now expect general merchandise margin to be at the top end of the guided range.'
The retailer's disappointing clothing performance was once again offset by its buoyant food division, which recorded its best Christmas ever, with a 17% jump in sales over the Christmas week and like-for-like sales up 0.4% over the period.
In a conference call with journalists Marks and Spencer chairman Robert Swannell said Bolland has not been placed under any pressure to leave from the board or shareholders.
Investors broadly welcomed the update, with the shares outperforming a falling FTSE 100, down just 1.2% at 433.3p.
Fund managers see positives
Fund managers holding the stock drew positives from the update. Citywire AAA-rated Chris White (pictured), who holds the stock in his Premier Income fund, pointed to the strong performance of the food division despite the troubles suffered by the big supermarkets, and hailed the margins delivered in general merchandise.
'The food side is robust and performing pretty well. Unlike the big four food retailers it’s more than holding its own,' he said.
'The guidance in terms of gross margin at general merchandise is top end of the range, so even though we can criticise Marc Bolland for not getting the top line moving fast enough, there is a lot of work that’s gone on behind the scenes. It involves things like buying better, more direct buying and improvements in distribution.'
James Illsley, Citywire AAA-rated manager of the JPMorgan UK Equity Core fund, said the update had provided some reassurance after a difficult Christmas period for retailers marked by the unseasonably warm weather.
'The weather was an issue coming into these numbers,' he said. 'It has been unseasonably warm for well over a month, so a lot of that weakness ahead of the trading announcement can be attributed to that.
'But today’s results are reassuring in terms of cost control and the operational delivery that is coming through. Their online offering delivered around 20% growth last year after causing a lot of problems around Christmas 2014, so Marks and Spencer is improving after underperforming operationally for some time.'
'Revolutionary spirit' needed
News of Bolland's departure drew a mixed response from analysts. Peel Hunt analyst Jonathan Pritchard urged his successor to bring 'revolutionary spirit' to the role, and ditch Bolland's focus on margin growth, either by cutting prices or improving the quality of goods.
'Customers regularly complain that quality has fallen, and our view is that either prices have to fall for the same garment, or prices can be held but with a higher product spec,' he said. 'Without this change of thinking, we cannot see why the current trend away from Marks and Spencer will change.'
Pritchard added that the focus on share buy-backs, such as last year's £150 million offer, should be scrapped in favour of reinvesting in stores, and boosting staff numbers. 'Of course, this change of tack may harm the share price in the short term, but radical action is required to ensure that Marks and Spencer has the best chance possible to merchandise its wares,' he said.
Tony Shiret, analyst at Haitong Research, said Bolland's departure was 'more mixed news'. 'We believe that Marc Bolland has done a good job in running Marks and Spencer consistently along a modernising agenda during a very difficult period, during which the more short-term approach of the previous management had to be reversed and the industry has faced major structural changes on both sides of Marks and Spencer's operations,' he said.
Clive Black, analyst at Shore Capital, hailed Bolland's 'very good work to fundamentally modernise and reposition Marks and Spencer to be fit for the future in sustainably challenging markets'. 'His successor from April, the excellent Steve Rowe, has a much stronger platform with which to take the business forward than Bolland inherited,' he added.
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