Food can’t boost M&S’s ‘dismal’ performance

By Nicholas Robinson contact

- Last updated on GMT

M&S's food sales rose by 2.8% in Q3, but overall sales were poor
M&S's food sales rose by 2.8% in Q3, but overall sales were poor

Related tags: Supermarket, Retailing

Marks and Spencer’s “dismal” performance was lessened by strong food sales, but the posh retailer’s weak online business could be troublesome, city analysts have warned.

Total UK sales fell by 1.1% in the 13 weeks to December 2014 and by 2.7% year-on-year, according to its third quarter update today.

Sales of general merchandise fell by 5.4% for the quarter, wiping out the 2.8% rise in food sales – boosted by a strong Christmas – for the same period.

M&S’s third quarter figures did not follow the signs of improvement showed in its November update, said Neil Saunders, md of retail analyst firm Conlumino.

 “Unfortunately, this dismal set of figures indicates this momentum has not been carried through into the Christmas quarter,” ​he said.

‘Even more discouraging’

“Even more discouraging is the fact that progress from Christmas 2013, when M&S presented a fairly sound set of trading numbers, has not been built upon.”

Online was a “critical” ​channel for M&S this Christmas and accounted for a higher proportion of its sales, according to Saunders.

Yet, logistical problems prevented them rising higher and marksandspencer.com sales fell by 5.9% for the quarter.

The company’s poor online food offering caused it to miss out on further food sales, but, “M&S is probably better off not having the headache of an expensive online ​[food] service,” ​Saunders claimed.

“However, in our view, M&S’s food offering is strong enough that it does not necessarily need an online offer to be successful – people will willingly come to stores to buy.”

Marc Bolland, M&S ceo, said the company had improved its cost controls and was expecting margins to remain unchanged in the future.

 “M&S had a very good Christmas in food,” ​he said. “We delivered record Christmas sales, strongly outperforming the market.

‘Difficult quarter’

“We had a difficult quarter in general merchandise, dominated by unseasonal conditions and an unsatisfactory performance in our e-commerce distribution centre.”

Senior retail analyst at Planet Retail Stephen Springham said: “Margin improvement in both food and general merchandise is likely to be the positive spin put on today’s Q3 trading update from M&S​.

“The food business is likely to have proved one of the standout performers in the entire UK retail market over Christmas.

Any like-for-like growth, however meagre, is a phenomenal achievement in the context of a UK grocery market that is contracting amid wholesale structural change.”

Analysts at Shore Capital, Clive Black and Darren Shirley, were more positive about the retailer’s future and said: “Looking forward, we continue to see more bright spots than blemishes on the M&S investment scorecard.

“We have high praise for the group’s food operations … since the group last updated to the market, the UK grocery trade has become demonstrably more competitive.”

Related topics: Chilled foods

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