Marks & Spencer (MKS) reported a 0.5% fall in first quarter like-for-like sales this morning, as the timing of Easter and improved performance in general merchandise led to a better overall sales performance.

Headline sales for the group were up 2.7% to £2.53bn in the 13 weeks to 1 July 2017, but both general merchandise and food sales fell on a like-for-like basis, dropping 1.2% and 0.1% respectively.

M&S shares are currently 4.7% down to 323.1p on worries over its food sales stagnation.

Himanshu Pal, Kantar Retail

While M&S Food witnessed a 0.1% decline in LFL sales, the performance is an improvement over the 2.1% decline in Q4 2016. The improvement could be attributed to grocery price inflation (+3.2% for the 12-week period ended 18 June 2017), and weak sales growth the same time last year. This should come as good news for investors and the M&S management team considering the rather disappointing finish to FY 2016.

While sales growth will be positively impacted by the planned opening of 90 Simply Food stores in 2017, Steve Rowe and his team will need to be wary of growing competition from the resurgent Big 4 grocers who are keen on expanding their premium range (food-for-now or tonight) credentials.

M&S will need to keep reinvigorating its food offer if it wants to maintain dominance with its traditional shopper base. One such area is helping shoppers make healthier eating choices, which now account for 41% of M&S’ food sales.

Ernesto Bisagno, senior credit officer for Moody’s

“M&S’s improved Clothing & Home’s sales (-1.8%) trend in Q1 is credit positive and shows some ongoing progress under the strategy implemented last year

“Whilst we expect the underlying markets to remain challenging, we anticipate a modest improvement in sales for the full year driven by the contribution from improved ranges and lower prices, as well as from better selling space.”

“Operating profit decline is likely to slow in 2018 to around -5% which also recognizes some ongoing improvements from the international operations… We expect free cash flow to weaken due to the cash component of the restructuring costs.”

SocGen analyst Anne Critchlow

“Slightly weaker than consensus… Best estimate is that the shares could underperform on this statement today, although the shares have already underperformed in the past month by 4%.

“The clothing market was actually strong in the quarter in the UK and it is worth remembering that the -1.2% LFL figure in C&H this year is on the back of a very weak prior year comparative of -8.9% in 1Q last year. Mature legacy mid-market clothing retailers are undoubtedly in a difficult place.”

Barclays

Overall, the sales numbers are modestly below expectations but the commentary is reasonably encouraging with new Simply Food stores performing well and the increase in full price clothing sales sounding positive for profit implications.

Peel Hunt

“Q1 hasn’t been a stellar period for the industry or for MKS: LFL in both GM and food is towards the low end of expectations but we see no reason to panic. Underlying progress is being made and we aren’t terribly perturbed by the GM number, the clothing market is tough and MKS didn’t have the sales benefit of a clearance sale in Q1.

“However, we must admit that we didn’t expect a negative showing on the food side, especially given that external conditions should have been favourable. We are trimming our (very) high end forecasts and easing back our price target a bit, but we still think that there is a great deal of value here.”

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