Marks & Spencer fails to sustain fourth quarter sales momentum

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Marks & Spencer’s (MKS) first quarter trading has met the City’s modest expectations, but its overall like-for-like sales growth fell back to zero after a 0.7% rise in the fourth quarter.

For the 13 weeks to 27 June M&S saw total UK sales rise by 1.9% (0.0% like-for-like growth) and total group sales up by 1.8%.

The results were broadly in line with market expectations and the 0.4% fall in like-for-like general merchandise sales (against a 0.7% rise in the fourth quarter) was marginally better than the gloomy forecasts. General merchandise was hit by a “challenging and promotional quarter”, though M&S said it was on track to deliver improved gross margins in the division.

Food sales were up 3.2% during the quarter, which represented 0.3% growth on a like-for-like basis and slightly below consensus expectations of 0.5% growth.

M&S said it was on track to open 90 Simply Food stores this year, and it continued to see good performance from outlets opened to date. It also launched 700 new lines in the quarter, including the new Taste of the British Isles range.

However, like-for-like general merchandise sales fell 0.4% in what was a “challenging and promotional” quarter. Overall, UK like-for-like sales in the period were up 1.9%, with total sales flat.

International sales were up 0.7% and showed “modest growth” on a constant currency basis. M&S noted the “challenging macro-economic environment”, but said key markets such as India and Hong Kong were performing well.

CEO Mark Bolland said: “We continue to make progress against our key priorities. Our food business did very well in a difficult market. In general merchandise, sales were broadly level on last year and we are on track to deliver the planned increase in gross margin. M&S.com performance was very strong, with customers appreciating all the improvements to our website.”

Simon Johnstone, Analyst, Kantar Retail called the results “a case of two steps forward, one step back” after its like-for-like decline in general merchandising.

He commented: “M&S should look to adopt the same winning formula for GM that it uses on its food business – where a combination of product innovation and unique assortment has delivered continuous growth. Even with pressure from rival supermarkets, M&S has managed to navigate the price wars and outperform its competitors in this area.”

Analysts at Shore Capital added: “In food, we believe that M&S is in a very good place, with a high level of exclusivity alongside its strong innovation rates and demonstrably premium quality meaning that M&S Food is well positioned for the challenges of the current UK market, where discounting remains a considerable challenge.”

“Whilst today’s update has taken us back to familiar territory for M&S we remain positive on the short-medium term potential, noting that comparatives materially ease through Q2 & Q3”

M&S shares had fallen by 1.1% by mid-morning to 541p. The shares are up 13% so far this year, but have fallen almost 10% since hitting an annual high of 600p in late May.