Shares in UK retailer Marks and Spencer may have jumped after today’s (31 March) trading update but industry analysts remain cautious about the group’s prospects.
M&S shares were up 11.7% this afternoon after the company reported better-than-expected sales during its fourth quarter.
The upmarket grocer, which has seen its sales hit during the downturn, said UK like-for-like sales fell 4.2% during the 13 weeks to 28 March – against analysts’ forecasts of a fall of 6.5-7.5%.
M&S said food sales were down 3.7% on a like-for-like basis during the quarter. The performance contrasted favourably with M&S’s third quarter when UK like-for-like sales fell 7.1% and comparable food sales dropped 5.2%.
Outside the UK, M&S said sales jumped 23% as the company integrated its Czech and Greek businesses and opened new stores. In all, M&S said group sales rose 1.9% during the quarter.
Nevertheless, the reaction from some City analysts was muted. Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said there was sign of a turnaround at M&S but insisted there was still “ grounds for concern”.
Hunter said: “There are few reasons to suppose that trading conditions will improve in the short term, and M&S describe the outlook as uncertain. Meanwhile, the fierce competition which the company faces will only intensify as retailers jostle for position and profit margins remain under pressure.”
He added: “There is a wide difference of opinion surrounding the company’s prospects, but on balance the general market view remains a weak hold.”
Matthew McEachran, retail sector analyst at Singer Capital Markets, said he was upgrading his stance on M&S from ‘sell’ to ‘fair value’.
“Our former negative stance on M&S reflected fears about continuing weak trading and structural margin falls and therefore the view that the M&S dividend would definitely be cut,” McEachran said.
“However, after a much better fourth-quarter trading period and given ongoing strategic changes, this view might not be so clear cut.”
McEachran was unsure whether M&S could maintain its dividend and depended on hge company’s trading in April and May.
“If better trading holds through Apr/May the dividend could be maintained, and M&S could break out towards 375p,” he said.
“However, if trading softens again in Apr/May a cut would seem likely and the shares would relinquish the recent gains. Everything therefore hangs in the balance pending April and May conditions and the prelims on 19 May.”