The high street retail chain outperformed a declining grocery market to post like-for-like food sales growth of 0.7%.
“The UK grocery market has been demonstrably tough with deflation now in the system, albeit an improving volumes position, falling gross margins and evident negative operational gearing and earnings erosion,” said Shore Capital analyst Clive Black.
“Within this context M&S has correctly stuck to its knitting in our view, focusing upon innovation (350 new lines in Q4, including a very strong Valentine offer), differentiated and high product specification, enhanced in-store delivery and so exclusivity.”
Black highlighted the retailer’s expansion of its Simply Food outlets, opening 200 additional stores over three years. That again swam against the flow of other grocery retailers, which were reducing capital investment and scaling back on store openings, he added.
“That new space provides a protection for the top line with deflation eating into values,” he said. However, he pointed out low commodity prices had also supported sales growth and would continue to do so. “Accordingly, M&S food gross margin has actually remained firm, which is a very robust outcome given industry conditions.”
Numis analyst Andrew Wade added: “Operating costs continue to be tightly controlled … the key driver behind this was efficiencies in the food supply chain.”
Anusha Couttigane, senior consultant at Conlumino, also praised the retailer’s food performance: “In food, M&S has managed to invest in price without compromising on quality or, indeed, profit.
“… Food performance over the quarter was boosted by Valentine’s Day and Mother’s Day, where M&S’s distinctive product positioning helped to grow custom for gift purchases.”
Stephen Springham, chief knowledge officer at Planet Retail, agreed M&S’s food operations had performed well. “Food [is] continuing to achieve like-for-like growth in a hugely challenging market,” he said. “And with gross margin improvement to boot. No buts here.”
However, he was less enthusiastic about the company’s progress in other categories. “A return to like-for-like growth in the core clothing category would ordinarily have the champagne corks popping at M&S,” he said. “But the fact that this has been achieved against such weak comparables (the corresponding period last year coincided with the botched relaunch of the website) means the fizz quickly goes flat.
“An improving trend, yes, but still underperformance in a UK clothing market that showed as much as 4–5% growth over the period. On the right track maybe, but still losing market share.
“Clothing on the way up, but GM [general merchandise] like-for-like sales still negative in Q4 – for the 15th consecutive quarter. By extension, the homewares business must be performing especially badly, despite strong consumer demand in a market buoyed by ongoing strength in the UK housing sector. This is a growth market, but M&S seems unable to grab any of it.”
Commenting on the retailer’s Q4 trading in the 13 weeks to March 28, ceo Marc Bolland said: “We have made strong progress over the quarter. In food we delivered another excellent performance, with sales growth ahead of the market.
“We continued to deliver on general merchandise gross margin, and are pleased that we have achieved this whilst also improving general merchandise sales. M&S.com has returned to growth, as planned, with further improvement in customer metrics.”