Steve Rowe, the new boss of Marks and Spencer Group Plc (LON:MKS) got a late present after the under-pressure retailer soundly beat forecasts for Christmas trading and reported its first quarterly rise in underlying clothing and homeware sales in nearly two years.
The high street stores group said its clothing & home like-for-like sales rose by 2.3% in the 13 weeks to December 31, smashing market expectations for a 0.2% rise.
M&S said food sales also rose over the period, up 0.6% and beating forecasts for a slight fall.
In reaction, M&S shares gained almost 3%, or 10.1p at 350.5p in early trading.
READ: M&S abandons overseas ambitions …
Rowe, who took over as the FTSE 100-listed firm’s chief executive in May, said: "I am pleased with the customer response we have seen to the changes we are making in line with our plan for the business.”
He added: "In Clothing & Home, better ranges, better availability and better prices helped to improve our performance in a difficult marketplace."
The numbers look to be showing Rowe's strategy of turning around the M&S clothing business, which has struggled for five years, is gaining traction.
Timing key …
M&S's numbers were helped by the timing of the period, with an additional five days of the busy post-Christmas sale falling into the quarter.
It estimated timing had a positive effect of about 1.5% on clothing & home sales and about 0.3% on food.
Rowe noted that, looking forward, M&S’s fourth quarter numbers will be adversely affected by sale timing and a later Easter.
He said: “Against the background of uncertain consumer confidence the business remains focused on delivering the strategic actions announced last year."
But, the M&S chief executive said: “Full year guidance remains unchanged. We continue to manage the business for the uncertain consumer outlook.”
George Salmon, equity analyst at Hargreaves Lansdown, said: “While reported sales are boosted by the inclusion of five additional days of December sales in this year’s third quarter, it’s clear that Christmas has been good to M&S.
"Even after factoring in the quirk of the calendar, the group has reported its first like-for-like improvement in Clothing and Home sales since April 2015.
“However,” he added, “ before investors uncork the champagne, it is worth remembering that this follows a 6% drop in like-for-like sales last Christmas, and the improvement isn’t enough for the group to bump up profit guidance for the year. “
Cautious welcome …
Haitong Research analyst, Tony Shiret - who has a 'buy' rating on M&S shares - said: “We have been positive on M&S on largely tactical grounds, seeing CEO Steve Rowe’s strengths as execution based, allowing profit stabilisation and recovery against weak comparatives.
“At this stage we do not really believe that M&S will get to a point where it is capable of long term sales-based growth given its starting point and the relatively undynamic nature of what has been proposed so far in the UK. But we believe that today is a good day for Mr Rowe and the company.”
And Cantor Fitzgerald analysts Freddie George said: “Overall this update was better than expected. However, Steve Rowe’s new strategy will not, in our view, lead to a marked improvement in earnings over the medium term although it appears sensible and focussed on preventing any further steps down in profitability.”
The analyst reiterated a 'sell' rating on M&S shares with a price target of 300p.
Analysts at Liberum also repeated a 'sell' stance on M&S, with a 250p price target, noting that today's update “highlights the fact that its market continues to be squeezed, by fast fashion, online, brands and value.”
They said: “We fear that for M&S the outlooks gets tougher still. The plan to close 10% of clothing and home space is very long term, in our view, and we see further erosion of Clothing margins in the meantime.”
-- Adds share price, further broker comment --