Marks & Spencer plc’s (LON:MKS) turnaround of the clothing and home division is expected to be “long and arduous” despite the sales decline easing in the first quarter.
The retailer reported a 1.2% increase in like-for-like sales at the business in the three months to 1 July, which was broadly in line with analyst’s expectations and marked an improvement on the 5.9% drop in the fourth quarter.
READ: Marks & Spencer shares drop after first quarter sales decline, driven by troubled clothing division
Chief executive Steve Rowe, who has been working to revive the struggling clothing and home business since being appointed last April, said the results were helped by reduced discounting and 7% growth in full price sales.
Sales were also supported by Easter falling later in the year.
M&S clothing and home sales worse without Easter, says AJ Bell
"On an Easter adjusted basis the fall was 1.8%, which is not so good, even though M&S trumpet the fact that full-price clothing and home sales were actually 7% up overall in the first quarter, on the back of reduced promotions," said Nick Bubb, retailing analyst and consultant at The Daily Retailer.
Shore Capital analyst Darren Shirley said today’s update confirmed that the restructuring of the division could be a “reasonably long and arduous one” to lift sales. Shirley noted that M&S begins its summer sale today, a week later than the previous year with terminal stock said to be significantly down.
“With further changes in year-on-year trading and promotional strategy to come, we do not anticipate a clean LFL trading number to emerge until the fourth quarter of fiscal year 2018,” he said.
Shares in M&S fell 4.48% to 323.80p in afternoon trading.
M&S food sales disappoint
In the food division, a like-for-like sales fall of 0.1% left investors displeased, even though it was better than the previous quarter’s 2.1% drop. The dip in food sales comes as M&S tackles the industry-wide challenges of a competitive grocery market and inflationary pressures weighing on the consumer, according to AJ Bell.
“After all, the grocery business remains brutally competitive, a weaker pound will not be helping when it comes to cost and margin pressures and presumably the British public can only eat so much in a given day, week or month, regardless of who is selling it,” said Russ Mould, investment director at AJ Bell.
The Brexit-driven slump in the pound has also prompted customers to be more frugal in spending on non-essential items, such as clothing, hitting the UK retail sector. Fellow clothing retailers Next plc (LON:NXT) and Debenhams plc (LON:DEB) have both warned of market volatility as consumers feel the pinch of rising inflation and week wage growth.
Growth in full price apparel sales could lift profits, says UBS
Looking at the brighter side, UBS said while there may be some "disappointment" about food sales, the 7% increase in full price apparel sales could be “more important as a profit driver”.
Liberum was also upbeat, saying it expects the company’s restructuring will eventually bear fruit.
“We believe today’s update demonstrates that strategic initiatives are delivering some improvement across the business, which if maintained, could cause us to reappraise M&S’s investment case.”
Steve Rowe works to overhaul M&S
As part of Rowe's strategy to resuscitate the clothing and home business, he has made changes to management and invested in improving the quality of items while lowering prices to lure in customers.
In May, the company announced it was recruiting Jill McDonald, the former boss of bicycle and car parts retailer Halfords, to lead the apparel and homewares division.
Rowe has also tried to lift food sales by opening extra Simply Food stores, expanding its products range and delivering more promotions.
Earlier this month, M&S brought back its £10 meal deal, which includes a main, side dish, dessert an a bottle of wine. The deal returned with more options, including two different cuts of steaks and a beef roasting joint.
In today's trading update, Rowe said the restructuring remains "on track" and the first quarter was in line with the company's expectations.
But Vinay Sharma, a senior trader at ayondo markets, said: “Investors are clearly disappointed in today’s figures and despite chief executive Steve Rowe’s assurances that they ‘remain on track’, we are seeing a lot more sellers in the stock than buyers this morning. The unexpected drop in sales for their sturdy food division could also be one of the catalysts that has got traders spooked."