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UPDATE - M&S does well with food but clothing sales flat

Last updated: 08:35 07 Jul 2015 BST, First published: 10:35 07 Jul 2015 BST

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The food business did well in a difficult market, according to Marc Bolland

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Question marks remained over the recovery at Marks & Spencer (LON:MKS) after food put in another good quarter but clothing was flat.

The chain's food business increased total sales by 3.2% and like-for-like sales by 0.3% in the 13 weeks to June 27.

But general merchandise (GM) sales - which include clothing - were broadly level against the same period a year ago in what M&S described as a "challenging quarter".

GM sales lifted 0.2% but like-for-like sales dropped 0.4%. Online sales, an area where M&S has been trying to catch up with the competition, were up 38.7%.

Chief executive Marc Bolland said the food business did well in a difficult market. He said the clothing business was on track to increase gross margins as planned.

Bolland described M&S.com performance as very strong, with customers appreciating improvements to the group's web site.

International business showed modest growth on a constant currency basis, notwithstanding the ongoing challenging macro-economic environment, with key priority markets such as India and Hong Kong performing well.

M&S said it was on track to open about 90 Simply Food stores this year, with a good performance from stores opened to date.

Bolland said: "GM sales were broadly level on the year. In a challenging and promotional quarter, we continued to focus on improving product quality and style."

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: “Whilst the statement contains little to shoot the lights out, it seems there may be signs of some positive momentum now being established.

"However, the elephant in the changing room remains, in the form of general merchandise. Whether M&S can ever return to former glories by enticing clothing shoppers back to its stores is arguably its largest challenge, even though the more recent experience implies at least a stabilisation of previously dropping numbers.

"The share price has certainly seen some improvement given Marks and Spencer’s tentative recovery, having risen 25% over the last year, as compared to a 5% dip for the wider FTSE100. Market consensus has also warmed to the prospects M&S may have, with the general view now being that the shares are a buy.”

Darren Shirley at Shore Capital said: "The main headline from the update is that the group has not been able to sustain the positive, and welcome, Q4 2015 LFL momentum in UK GM into the new financial year.

"Such a lack of see-through is a modest disappointment to us, not least because we have been more positive on the stock since its’ FY2015 preliminary results.

"That said, with GM trading not as bad as feared across the market and noting the stock sits c10% below its recent highs, we remain positive and expect a robust performance today."

Shares in M&S rose 5.5p to 552.5p in the first hour of trading in London.

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