Summary of Sir Stuart Rose's press call on Christmas Trading

Sir Stuart Rose stressed volumes were ahead of the previous year

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Drapers summarises the content of M&S chief executive Stuart Rose's conference call with national and trade press on January 9 following the release of the retailer's Christmas trading statement.

Group sales were up 2.8% for the 13 weeks to December 29 with general merchandise up 0.7% and food sale ahead 5.1%. However UK like-for-like sales were 2.2% down with general merchandise down 3.2% and food down 1.5%. International sales were up 15.1%.

Sir Stuart Rose began the conference call by outlining his view of the market over the trading period.

"The first thing is that the market has seriously softened particularly in November and December. It is fair to say that we are in for a tough time for UK Plc economy. We are preparing for a tough time until spring 2009. We are not immune from that market because we are the largest retailer of clothing in the sector by volume and by value and we have the largest geographic spread. So that is a confirmation that people are cutting back a little bit."

M&S plan to keep investing in business
"If you look at M&S you need to spend some time understanding the numbers we put out this morning. We sold more goods to more people than we sold last year. And we sold more goods on a like-for-like basis than we sold last year despite the fact that the l-f-l number is down. That is because we had some 6% price deflation. In fact we saw our biggest volume increase in sales over this period for six years."

"M&S customers had a great Christmas while M&S in revenue terms had a flat Christmas, although I will say that was against very strong comparisons over the last couple of years."

"We traded full price up until Christmas. We cleared our stock and we have now come out of Sale into a full price spring. We continue our plan to invest in the business in terms of products, stores and environments."

"You have to remember that our price management has to be for those people who are financially challenged through to those who have got rather more to spend. That is the portfolio of customers we have to look after. The market is tough. We have to keep our heads down and keep our nerve and keep trading forward. We are not immune from wider economic circumstances."

Question 1: Elizabeth Rigby of The Financial Times: Could the trading statement  be termed a profit warning as analyst notes suggest it was?

Rose: "It's not a profit warning. We have only just finished the third quarter and we have still got 12 weeks to run in terms of trading. The analysts will have to do what they do. We have not commented on profits."

Question 2: - Will you be cutting your capital expenditure? reviewing your store refurbishment programme ?

Ian Dyson [M&S finance director] said: "We spent £1.5 billion doing 70% of our stores. Returns are strong with modernised stores generating incremental returns over and above non-modernised. We are committed with continuing that programme over time. We will look at the pace of the refurbishment programme on the remaining 30% of the estate. It's only right that we review our capital expenditure in the light of the economic environment"

Question 3: Steve Hawkes, The Times:  What is going to happen to staff bonuses given the pressures the business is now facing? Will you leave in 2009? You have been seen as a saviour of the business up to now but I was wondering today, how you feel personally?

Rose: "Personally I'm as fit as a flea. Look, life is all about ups and downs. There is no crisis here.  All you are seeing is that the largest retailer of clothing in the UK is saying that yes UK customers are being more circumspect about what they are spending going forward. We anticipated that and reduced the price of our goods by some 6% so when we took £100 on goods last year we only took £94 this year.  So you have to run very hard to stand still. ...Now would you rather go into a difficult climate with a really aggressive first-price-right price-stance? Or would you rather go into it with and have to be 70% off before Christmas? I pose the question to you.

M and S shoppers said they were worried about rising costs in the run up to Christmas

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"As far as I am concerned I am here for five years. I haven't done four yet . When I have got past four, I think it is legitimate to ask me the question. I made it clear in November that I didn't say I would go in five years and I didn't say I would stay. I said that I would review it.  

"In terms of bonus, this time last year we were well ahead of our internal forecast. This year you don't have to be a genius to work out that we are not so far ahead but we have still got the last quarter to run so we will wait until we have the knowledge before saying whether we will be able to give a bonus or not." 

Question 4: Tamsin Brown from The Daily Mail : You have warned that things could remain tough until spring 2009. Do you think l-f-l's could remain in negative territory until then? The MPC are meeting today what do you think they should be doing?

Rose: "I have not a clue. But I believe that M&S shouldn't underperform the market in the year to come so we just have to see what happens. We will modernise more stores, innovate on product and continue our open-to-buy stance. I don't think the MPC should put rates up."

"M&S is the bell-weather and that's why there has been a strong reaction to our results this a.m. - before this there has probably still been a little bit of a hope in the market that things are not as bad as people have been saying they are. All this says is things are a little tougher."

"Every week we sample 16 million to 17 million customers and they are telling us that they are finding it  tougher. If you are an average income earner like many of our customers, your inflation is way above the headline number of 2%, with costs of petrol, insurance, nursery fees all going up. Ironically the only costs that haven't gone up are the costs of electronics and clothing so, yes, we need interest rate reductions but, if we get them, it won't feed through immediately which is why we are saying things will be tough for 12-15 months."

Question 5:  How bad is it out there compared to other downturns you have seen?

Rose: "We are clearly not in a recession but it is the toughest I've seen it for a decade. People are worried. We did an internal survey three weeks before Christmas. Customers said they were going to spend less, that they were worried about the economic situation in 2008 and they were worried for the safety of their money in the bank."

Question 6: Are you worried that the M&S recovery plan has stalled?

Rose: "Let's just put things into perspective. I don't know what the profit outturn this year will be but let's assume its' around a billion pounds - you are still going to be making 12% return on sales."

"Now, you go round the high street and look and see who else is doing that. This is a very strong business it owns it's own property portfolio, it is not highly geared, it has increased its dividend and it's got good covenants. It has a great offer, stocks are under control and it's making a lot of money. It's not in any way a disaster."

"If you are saying 'does this mean that growth over the next couple of years will be slower than we anticipated?' well the answer is, it could well be. That will not divert us from going overseas or investing in the internet and store refurbs or new product areas and new space. But as prudent managers clearly we have to look at our housekeeping ourselves and say can we afford to do this, this year?"

"I have absolutely no doubt that we are doing the right things, and absolutely no doubt that I would rather be running Marks & Spencer in a tough period and continuing to innovate and invest. Because when we come out of this tough period, which we will, we will be in a strong position. How bad do I feel? Well I'd like business to be better but there are much worse places to be."

Question 7: Julia Finch of The Guardian: You sound frustrated Stuart?

Rose: "The only reason I am a bit frustrated is for one point which I can't seem to get people to understand. They don't seem to get the price deflation and the volume increase thing, which is frustrating."

Question 8: Are you shocked at today's share price fall?

"Julia, I am so old and so long in the tooth I gave up worrying what the market would do years ago. I think there is a bigger thing here and that is that I think the market has woken up to the fact that the UK economy has got a cold. Everybody has been hoping it hasn't - well it has."

Question 9: Were you happy with the advertising up to Christmas?

Rose: "Very happy. Our advertising stance has done a great deal to put us back on the map."

Question 10: Andy Street, boss of John Lewis, said that its success was having the right product at the right price and great service. What things would you have liked to have done better?

Rose:  "Ask Andy Street what his deflation was last year. I bet there wasn't any and that's the issue. They don't compete directly head to head with the likes of Tesco and Asda on things like men's pants which I do, because I have customers who go directly to Tesco to buy things."

"Therefore I have to choose to pitch my tent in a slightly different place and that's why we have had price deflation. But if you look at my men's underpants business I am the market leader and we have increased our volumes during this period when we have decreased prices. That has got to be the right thing to do."

"John Lewis is a little bit insulated and they had a good Christmas. Well done to them. They are a great business. But they fish in a smaller and slightly more exclusive pond than we do."

Question 11: You said online was good. Can you put any flesh on the online sales data?

Rose: "We had an 80% rise in online sales. 35,000 people at one minute past midnight on Christmas Day logged on. It's astonishing and we are on target to meet £500m turnover by 2010. Traffic is up by 40% and conversion is up by over 20%. Bestsellers were everything through from men's suits to lingerie and Per Una, wine and flowers were very strong."

Question 12:  Tom Braithwaite of The FT: How is menswear performing?  A lot of people are struggling with that particular market.

Rose: "We're doing alright. The volumes were up by over 2%. We continue to make progress and remember we are six times the size of our nearest rival, Next. This is the scale of M&S. All credit to anybody who is doing well but you should take from this the same as what the market is taking."

"And that is that. If you are as big as we are and selling the sort of volume we do to the mass market, and that mass market is saying 'ouch', then it is bound to have an effect on the biggest player in that market. It is therefore an indication that the economy is in a bit of trouble. In other words - tell me something you didn't know back in October."

UK like-for-like sales fell by 2.2 per cent

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Question 13: Steve Hawkes, The Times: You said that this slowdown was almost regionalized with Scotland dramatically slowing in sales can you comment further on that?

Rose: "There are some regions where people are financially challenged. I think in Scotland and the north of England we are seeing more of a slump. The south-east is less effected. I have never seen such a polarised economy as we have got now - when the West End can't get enough diamonds to sell to rich people and yet you go outside of London and it's a completely different economy."

Question 14: What's happened to group margin with all this price deflation?

Rose: "Not giving guidance on margin today but margin on the first half was broadly flat. I would not expect much change."

Question 15: James Hall, The Daily Telegraph: Do you anticipate having to lower prices more?

Rose: We don't have to, but it's a question of whether we choose to. Back in 1999 M&S sat back and said, 'We are M&S. We are above that. We don't need to lower our prices,' and look what happened."

"What we say this time is it will maybe get a bit tougher and we want to make sure that our customers see that we are absolutely spot on. We compete with everybody and we have to make sure that we have a price architecture that can be defended across every category in which we trade."

"So when we lowered our prices by 6% it was deliberate. Do I expect to have to keep reducing prices? I don't think so. There is a strong indication that there is going to be some flattening out because of the inflation that is coming through from China. But I have said, and will say again, if M&S has to invest margin to remain price competitive, we will."  

"If you had to make the choice would you choose to sit back like we did in 1999 and ignore it again and find yourself in a real hole two years down the road?"

Question 16: Are you concerned about  your share price dipping below the symbolic £4 mark?

Rose: "Not remotely. The market can do what the market does. The symbolic £4 that Philip [Sir Philip Green] might have offered back in 2004 is completely different fom £4 today. The business has experienced a lot of financial changes since then and the market was a bull market then and a bear market now. It's comparing an apple and a pear. It's a free market economy. Shareholders must do what they want to do."

Question 17: Lorna Hall from Drapers: The BRC figures said menswear outperformed womenswear over Christmas was this mirrored at M&S?

Rose: "In volume terms there wasn't a lot in it. We had an ok time in womenswear. We maintained market share and in volume we increased it."

Question 18: Numis estimated from today's figures that your l-f-l's in clothing dropped 3.7%. Is that fair?

Rose: "We haven't given a number but broadly speaking you would not have to be a genius to work it out. General Merchandise is down 3.2%"

Question 19: You said that you are out of Sale faster than last year.  Can you tell us a little bit more about your Sale strategy?

"The only difference was that we wanted to have a shorter sharper Sale but we didn't want to go on Sale before Christmas.  Which was absolutely the right thing to do. If you went on Sale before Christmas this year, what are you going to do next year?  If you discount at 70% for three weeks before what are you going to do next year?"

"We wanted to get out of the Sale quicker because we thought, and I still believe that we did the right thing, that the customer would have a finite amount of money to spend on the Sale.  I wanted to ensure that I got my fair share of it. We were quite aggressive in our opening discounts I think we said we were up to 70% in some cases. We cleared it out very fast, moved on and now it's finished so it was the right thing to do."

Question 20: Looking at spring, you have already said it's going to be a tough year and we have heard fashion retailers saying that there is a lack of clear trends for spring 08. How will the business tackle that?

Rose : "We haven't got any particularly strong trend coming through but dresses will stay in. People want it right not only on the value but on styling. Although trends aren't that clear there are some strong fabric stories coming through, good prints and metallics and easy to wear colours. We need to ensure that we get in there and get them absolutely right."

"We will get a bit sharper on the development. But the good news is that we are not tucked up with stock and we have got open-to-buy and, if you speak to Kate Bostock now, she's got buyers who can  get out there and buy if they need to. That's a good place to be. I don't believe that everybody out there is in that position at the moment."

Question 21: Jenny Davey, The Sunday Times:  Is your overseas strategy a blessing or a problem when the UK market is like it is at the moment?

Rose: "This highlights the problems faced by businesses that are more UK centric, as we are. If the UK sneezes, you catch the cold. M&S having, over time - and I'm talking about the next five years - a more substantial international business does give you a little confidence and security, and that's our declared strategy and there's no change on that.

Question 22: Would you look to realise any capital from your UK property portfolio later in the year?

"We have a strong balance sheet. A good store portfolio why would you want to turn that into cash and why would you want to exchange it for a rental stream going forward? There is absolutely no change on that."