M&S, Tesco Join Other U.K. Retailers in Christmas Doldrums
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Three of the biggest retailers in the U.K. struggled with brutal price pressure and the shift to e-commerce over Christmas.
Marks and Spencer Group Plc (LON:MKS) said it expects gross margins around the lower end of its guidance for the year after holiday sales at its long-struggling clothing and home unit were weaker than the consensus.
Tesco Plc's (LON:TSCO) revenue dropped on a comparable basis as a weaker performance in central Europe masked growth in the U.K. that came ahead of expectations. Food also performed better at Marks & Spencer.
Adding to the downbeat tone, John Lewis Partnership Plc warned that it might not pay a bonus to its employee-owners after a drop in revenue. Paula Nickolds, the managing director of its department store division, is leaving.
The reports confirm fears that U.K. retailers would suffer over Christmas in an increasingly tough U.K. retail environment, marked by intense promotional pressure and weighed down by political turmoil.
Marks & Spencer shares fell as much as 4.8% in London. The stock has lost more than half its value after dropping in each of the past five years.
M&S’s outperformance in food stems from investments in the product range and price cuts. Menswear and lower gift sales held back the clothing unit. The company has been trying to turn around its business for the past decade, and its latest efforts are being led by Chairman Archie Norman and Chief Executive Officer Steve Rowe.
Rowe said the weakness in Christmas sales were largely due to one-time issues such as the menswear performance and waste in the food unit.
“The changes we made earlier in the year in clothing have arrested the worst of the issues of the first six months and we are progressively building a much stronger team for the future,” he said in a statement.
The reports follow updates from grocers Wm Morrison Supermarkets Plc (LON:MRW) and J Sainsbury (OTC:JSAIY) Plc earlier this week. While Morrison acknowledged that its lackluster sales were partly its own fault -- it failed to take part in Black Friday sales this year -- Sainsbury's (LON:SBRY) performance was fairly robust. Next Plc (LON:NXT), the first retailer to update the market last week, also beat market expectations.
The departure of Nickolds at John Lewis follows that retailer’s decision announced in June to name U.K. former telecom regulator Sharon White as its next chairman. The company’s department-store operations have been hit especially hard by the growth of Amazon.com Inc (NASDAQ:AMZN). and other online retailers.
Tesco (LON:TSCO) rose as much as 0.8% in London. Bruno Monteyne, an analyst at Sanford C. Bernstein called the chain’s U.K. results a “material outperformance” compared to rivals.
“In a subdued U.K. market, we performed well, delivering our fifth consecutive Christmas of growth,” said Tesco CEO Dave Lewis, who will be leaving the grocer this year.
(Updates with shares in sixth paragraph)