Marks and Spencer may face further tough times ahead, analysts warned today (2 October), despite the UK retailer’s trading update meeting expectations.
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Shares in M&S jumped today, despite a fall in sales, as the company detailed plans to scale back capital expenditure and said operating costs would be lower.
Keith Bowman, an equity analyst with brokers Hargreaves Lansdown, said he viewed the M&S results – which detailed a 6.1% drop in domestic like-for-like sales during the quarter – with “a sigh of relief”.
Bowman said: “The figures weren’t exactly glowing but they weren’t exactly as bad as people felt they would be.”
Nick Bubb, a retail analyst with Pali International said the fall in sales was “no more than the market expected”, adding that M&S was “off the hook for the time being”.
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By GlobalDataHowever, Bubb warned that sales had only been achieved through price-cutting and that gross margins at M&S were weak. Bubb said that he suspected M&S’s food division, which saw sales fall 5.9%, had “taken the brunt of the gross margin pain”.
Bowman said there were some “potentially significant clouds on the horizon” for M&S as it continues its battle to win over the UK’s increasingly price-conscious consumers.
M&S, renowned for its premium, own-brand food, has moved to promote its value credentials and has also begun selling branded goods.
Bowman said that while, M&S had been “suddenly forced to consider the value option”, UK consumers were showing little sign of “doing their weekly shop” at its stores.
Moreover, Bubb, while upgrading Pali’s recommendation on M&S’s stock from ‘sell’ to ‘neutral’, said the company “still has plenty of problems, particularly in its food operation”.
Shares in M&S were up 8.09% to 227.25p at 17:37 BST today.
