Shore Capital analysts Darren Shirley and Clive Black praised the retailer’s 4% like-for-like food sales growth, which they said had outperformed the market.
“With its exacting specifications and good reputation for high quality and provenance, M&S has maybe been a beneficiary of any customer switching surrounding the horsemeat contamination in the first quarter of 2013,” said Shirley and Black. “However, there are broader improvements too. Recently Shore Capital visited M&S’s Handsforth Dean store near Manchester and felt it was one of the strongest food propositions that we have seen from the business for some years.”
Overall, sales were up by 6.3%, while total UK sales were 2.6% ahead and general merchandise sales down by 2.2% on the same period of last year. (The Food Manufacture Group is staging a free one-hour webinar on the lessons to be learned from the horsemeat crisis. More details are available at the end of this article).
Multi-channel sales rose by 22.9% and international sales were up by 7%.
But clothing sales were hit by unseasonally cold weather. “Given the particularly unfavourable weather for the British rag trade over the last quarter, that is very cold, one could argue that there has been an underlying improvement in performance in UK general merchandising.
‘Not a reason to put up bunting’
“While such a performance is not a reason to be putting up the bunting, it is moderately pleasing to us, noting that at the third quarter we were forecasting a fall in general merchandising like-for-like sales of 2.5% in the fourth quarter, and it may come as a source of relief to the market.”
Shore Capital retained its current pre-tax profit estimate for 2012/13 of £629M. But Shirley and Black worried about the retailer’s general merchandise trading. “Shore Capital has been disappointed and concerned about the sustained under-performance of M&S’s general merchandise activities for some time now,” they said.
“The performance in the group’s core category and market has understandably masked what we deem to have been tight management of the group’s cost base, good progress in food, the creation of a sensible strategy for internationalisation and sound, if not stellar work, on multi-channel development to our minds.”
Shore Capital retained its ‘buy’ recommendation on M&S stock.
‘Lost its way’
But Richard Perks, retail expert with Mintel, said a fundamental problem with the business was that M&S boss Marc Bolland understood food and drink sales but not clothing. “The business really does seem to have lost its way in fashion,” Perks told BBC Radio 4’s Today programme yesterday (April 11). “The competition is just that much stronger.”
M&S should really be doing well at the moment. It’s not just low prices that matter. There are plenty of premium brands that are doing well – it is value for money. Value for money always used to be Marks’ great strength and, to an extent, it still is. But it has lost its way in fashion and fashion is an integral part of that value for money idea.
Bolland said: “We are working hard on improving our performance in general merchandise and, despite difficult trading conditions, we made progress in our operational execution.
“We delivered an excellent result in food, with performance well ahead of the market, as customers continued to trust us for provenance and quality. We are increasingly seen as the destination shop for special occasions. Multi-channel sales growth accelerated and our International business also performed well during the quarter.”
Meanwhile, the Food Manufacture Group is staging a free one-hour webinar on the lessons to be learned from the horsemeat crisis at 11am GMT on May 16, in association with business law firm DWF.
Taking part will be Andrew Rhodes, director of operations at the Food Standards Agency, Professor Tony Hines, of Leatherhead Food Research, and Hilary Ross of DWF.
More information and registration for this free webinar is available here.
M&S results – at a glance
- 4% like-for-like sales growth in food
- 6.3% total like-for-like sales
- 22.9% sales growth in multi-channel activities.
- 7% sales growth in international operations in constant currency (actual sales up 6.7%)
- Group sales growth of 3.1% compared with 0.6% in the third quarter.