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UK Retailers Forge Ahead Amid Supply Chain Distruptions

Holiday sales provided some positive news to Marks & Spencer and JD Sports Fashion plc, while online platform Asos struggled with higher costs due to supply chain woes.

Reports from the U.K. retailers also show ongoing concerns in connection with the Omicron variant. The holiday results come as U.K. data firm Springboard said earlier this month that footfall for all U.K. retail destinations fell 15 percent in the final week of the year compared with the run up to Christmas for the prior week.

Marks & Spencer

“Trading over the Christmas period has been strong, demonstrating the continued improvements we’ve made to product and value. Clothing & Home has delivered growth for the second successive quarter, supported by robust online and full price sales growth,” Steve Rowe, CEO, said. “The market continues to be impacted by the headwinds and tailwinds that we reported in the first half, but I remain encouraged that our transformation plan is now driving improved performance.”

The Marks & Spencer (M&S) CEO was commenting on preliminary results for the 13 weeks ended Dec. 28, 2021.

While there’s been concern in the retail sector over whether M&S’ turnaround plan is taking hold, current revenue results indicate progress has been made as the retailer implements a strategy to attract younger consumers. Total group sales for the third quarter were up 18.5 percent to 3.272 billion pounds ($4.49 billion) from a year ago, and up 8.6 percent from the 2019-2020 period. Total U.K. sales rose 18.6 percent to 2.999 billion pounds ($4.12 billion) from last year, and up 8.9 percent over a two-year stacked period.

In the apparel and home category, sales jumped 37.7 percent to 1.08 billion pounds ($1.49 billion) from last year, and up 3.2 percent on a two-year basis. M&S said full price sales grew by 45 percent as it reduced the amount of product sold on promotion by 66 percent and reduced inventory levels by 21 percent versus the same 2019-2020 period. “Online sales continued to be strong, with growth of 50.8 percent supported by substantial expansion of in-store fulfillment,” the company said, adding that store sales were down 10.8 percent from 2019-2020 figures, with retail parks up, continuing to outperform stores in city centers.

On the international front, sales rose 17.4 percent to 272 million pounds ($373.5 million) from last year, and up 5.1 percent on a two-year stacked basis. Performance was driven by apparel and home growth in the Republic of Ireland and in key markets such as India after Covid-related restrictions were eased. “In addition, we generated strong growth through online marketplaces and in franchise shipments to the Middle East,” M&S said.

In November, the company said it expected the strong trading it saw in the early part of the quarter to continue. “As a result of our performance in the balance of the period, we are more confident of our ability to deliver the increased guidance we set, and now expect full-year profit before tax and adjusting items of at least 500 million pounds ($686.7 million). This assumes no further material restrictions or lockdowns,” the company said.

Asos

For the four months ended Dec. 31, Asos reported a 2 percent increase in total group revenue to 1.39 billion pounds ($1.91 billion). On a constant currency basis, the increase in revenue growth was 5 percent, which the company said was in line with guidance despite continued supply chain constraints across the industry. The company had warned of supply chain issues in October, a period that also saw its CEO exit the company.

On a reported basis, total U.K. sales rose 13 percent to 645.2 million pounds ($886.1 million), with sales in the European Union market down 3 percent to 390.2 million pounds ($535.9 million) and total sales in the U.S. up 7 percent to 172.6 million pounds ($237.0 million).

Asos also said as expected gross margin fell by 400 basis points to 43 percent, driven by heightened clearance activity to shift slow moving 2021 spring/summer stock, elevated freight costs, and use of air freight to circumvent supply chain constraints and maximize the peak selling period. The company said it expects to see improvement as the year progresses as “peak-related supply chain bottlenecks ease” and inventory levels normalize.

“Low to mid-single digit price increases have been taken to mitigate cost inflation going forward across both ASOS and partner brands,” the company said.

The company said it has made continued progress on its strategic priorities, including the successful pilot of Partner Fulfils (in partnership with Adidas and Reebok in the U.K. in November, with expansion via a rollout to Europe in Fiscal Year 2022), the soft launch of Asos brands edit in Nordstrom stores and online and the launch of its Premier offer in key international territories. Asos also said it Topshop brands continue to perform well on its Asos platform, posting “strong growth of more than 200 percent year-on-year.”

Guidance for the year was unchanged, with revenue growth expected in the range of 10 percent to 15 percent and adjusted profit before tax of 110 million pounds to 140 million pounds ($151.1 million to $192.3 million).

Shares of Asos are expected to begin trading on the London Stock Exchange’s Main Market by the end of February, the company said. It is currently preparing a prospectus in connection with its application for admission.

“Asos has delivered a robust start to the year, in line with the guidance we set…despite challenging market conditions. This performance reflects the strength of our offer, excellent customer experience and the dedication and hard work of all [Asos staff]. We continued to make progress against our objectives to improve the flexibility and speed of our retail model and accelerate the pace of delivery of our international growth strategy,” Mat Dunn, chief operating officer, said.

JD Sports Fashion Plc

The company said total revenues for the 22-week period to Jan. 1, 2022 in its like-for-like businesses were “more than 10 percent ahead” of the same year-ago period, with positive performance across the Black Friday and Christmas selling season.

“We are also encouraged that gross margins for the second half are in line with the prior year,” the company added.

JD Sports noted that the sustained positive nature of consumer demand through the second half should provide Group profit before tax for the full year ending Jan. 29, 2022,  ahead of current market expectations, which average 810 million pounds ($1.11 billion). Including expected results for the month of January, the full year estimate for profit before tax will be at least 875 million pounds ($1.2 billion). The company also said that due to fiscal stimulus in the U.S. for the first half, it likely received a benefit of 100 million pounds ($137.3 million) to the overall result.

JD also noted ongoing Covid challenges ahead due to operational restrictions across Europe and Southeast Asia, along with constraints connected to the supply of inventory from certain brands. Because of its deep product assortment and buying and merchandising capabilities, the company said it is “well placed to manage these challenges.”

“JD Sports’ pretax-profit guidance of 875 million pounds in 2021-22 is 8 percent ahead of consensus, with same-store sales 10 percent higher, shrugging off supply-chain challenges,” Charles Allen, global retail research analyst at Bloomberg Intelligence, said. “The continued consumer appeal of sports shoes and the company’s disciplined multichannel retail approach are keeping it ahead of competitors over a broad geographic footprint.”

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