Retail watchers today (6 January) issued a gloomy analysis of Marks and Spencer’s latest sales numbers – a set of figures that led to the UK group’s shares closing down almost 7%.
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M&S booked a rise in like-for-like sales – the first in two years – but the numbers caused concerned among analysts and were received poorly by the market. The retailer’s stock closed 6.8% lower on the day at 377.4p.
The company’s sales compared favourably to a year ago, when UK like-for-like sales slid 7.1% and the group issued plans to close 27 stores and cut over 1,200 jobs.
In the subsequent months, M&S has focused on value, launching a series of food promotions to attract cash-strapped shoppers.
However, some commentators argued that the results issued today and missed expectations and expressed concern about the impact the value strategy has had on margins.
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By GlobalDataKate Calvert, retail analyst at Shore Capital, described M&S’s food performance as “mellow” compared to the numbers issued by Waitrose yesterday.
“Expectations were running high into this update and we believe these results highlighted the structural and operational issues M&S faces, which we believe are likely to hold back a recovery and result in continued industry under-performance for several years while management addresses them,” Calvert said.
In November, former Morrisons chief executive Marc Bolland was appointed to head M&S but he is unlikely to formally take charge until the second quarter of the year.
Calvert said it was unlikely that the market will hear anything about Bolland’s plans for the business before the autumn.
“We are becoming increasingly concerned that further gross margin investment in its food business will be needed next year to generate any volume growth,” Calvert warned as she downgraded Shore Capital’s rating on M&S’s shares from ‘hold’ to ‘sell’.
Katharine Wynne, an analyst at Investec, said M&S was likely to have seen more pressure on margins during its fiscal third quarter as it traded in an ever-more competitive UK grocery sector.
“As we expected, M&S has had to step up promotional activity in Q3, which we take to be the main reason that group gross margin guidance has not been upgraded,” Wynne wrote in a note to clients. “Food was better than feared, but we suspect at the expense of margins.”
