Marks and Spencer FY 2Q17 Earnings Call Notes

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Marks & Spencer’s (MAKSF) CEO Steve Rowe on Q2 2017 Results

Trying to avoid price increases wherever possible relative to currency pressure

“I’m sure many of you are wondering about our approach to the currency pressure. Our hedging approach means that we have some protection, and we aim to balance the increased input costs with a focus on better buying and reduced markdown. We will avoid price increases, wherever possible, and we will remain competitive and offer our customers great value. So a combination of developing a simpler offer, of great value, for our customers.”

There is actually a fair degree of optimism in the country at the moment

“In terms of the market slowdown, we’ve been trading through a market slowdown for some time now and our food business has been fairly robust on that basis and, as I said, continue to gain market share. If you look forward, the consumer barometer that we have, there is actually a fair degree of optimism in the country at the moment and there was a big bounce back after the Brexit vote. It tailed off and then came back. Traditionally, when there’s been a downturn, if there’s been a downturn, M&S has benefited a little bit by the fact that people who used to dine out and want something special to eat usually dine in and buy M&S food. So we’ll see.”

Customers are telling us they’re optimistic

“We’ve got a good consumer barometer. We talk to lots of customers, it’s one of the biggest in the UK, and it’s a fairly simple set of questions that determine how they feel about the environment and the economy. And they’re saying they feel optimistic and they’re looking forward to a good Christmas. I think what we can also see is there is a shift in spending habits, which is based around leisure and experiential activity. But to be honest, our job is to make sure we’ve got the right product that attracts, it’s a big enough market for us to play in and that’s what we’re focused on.”

Helen Weir

Western Europe and Middle East most affected by low consumer confidence

“Moving on to look at international; constant currency sales fell year on year as we continued to be exposed to the challenging macroeconomic environment in many of our markets. In particular, Western Europe and the Middle East were affected by low consumer confidence and depressed tourism. Profits were lower by £6 million, primarily due to reduced profits in our franchise business where Middle East shipments were down, and we continue to see significant losses in a number of our owned businesses.”

Stores still a bit more profitable than online but marginal cost of online sale, online more profitable

“In terms of the profitability of online, all of our channels are now profitable. Obviously, our stores are still a bit more profitable than online. We don’t disclose anything more than that separately. I sometimes find this a slightly strange question, though, because fundamentally we are a business that provides an opportunity for our customers to shop when and where they want. And, as Steve said in his presentation, we believe there is a role for stores and online, so one has to really look at the whole mix in terms of the performance…Yes, and we would expect that the online profitability percentage would also improve. Actually, if you look at the marginal cost of an online sale versus the marginal cost of a store sale fully costed, then it’s exactly more profitable.”