viewMarks and Spencer Group PLC

Marks & Spencer Group PLC's sales reverse not as bad as forecast

The sales reverse was not as bad as the market had been forecasting.

Food sales were flat - which was pitched as M&S outperforming the grocery sector.

It was bad, but just not quite as bad as expected. This probably explains why shares in Marks & Spencer Group PLC (LON:MKS) rose in the aftermath of its latest trading update.

There may be a new face fronting the business in the form of chief executive Steve Rowe, who took over from Marc Bolland earlier this month, but the story was all too familiar.

Underlying sales for the 13 weeks to March 26 fell by 2.7% in the core clothing and home division.

That reverse was better than the 3.4% being predicted by the market and the 5.8% drop recorded in the third quarter.

The food business failed to grow (though this was painted as Marks outperforming the wider grocery market). Sales via its web site actually increased - by 8.2% in the quarter.

And there was decent news on profit margins achieved by the main Marks business operation, which are expected to expand by 2.4-2.5 percentage points.

"Turning around our clothing and home business by improving our customer offer is our number one priority,” said Rowe - a priority that sees little deviation from the aim of his predecessor.

How he plans to do this will come out when he updates on strategy on May 25 alongside full-year results.

The shares, off around 24% in the last year, enjoyed a positive start to the trading day, posting a 1.4% rise to 426.1p.

Freddie George, Cantor Fitzgerald’s retail analyst, repeated his ‘sell’ advice, as he said M&S would continue to struggle. 

He told clients: “We believe history will show that Steve Rowe, who was appointed chief executive at the beginning of April, has inherited a business that has pulled out the ‘kitchen sink’ to improve its profits over the last three years.

“Gross margins on general merchandise…are likely to consolidate at best while there are no easy remedies to drive sales.

“Food has been a surprising success but we believe faces growing competition from a more confident food retail sector. In the meantime, we cannot see the company moving off the current level of pre-tax profitability, which has averaged £669mln over the last seven years.”

Quick facts: Marks and Spencer Group PLC

Price: 187.5 GBX

Market: LSE
Market Cap: £3.66 billion

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