Don't write off Marks & Spencer after festive flop

A recovery since nudging a new 10-year low over Christmas remains intact despite some grim-looking festive figures. Lee Wild, head of equity strategy at interactive investor, has the detail.

Like all the established UK retailers, Marks & Spencer (LSE:MKS) has been warning for years that online competition and discount stores are stealing business, and that's reflected in these third-quarter results. Cautious consumers, mild weather and an uninspiring offering across clothing and food haven't helped. But a new management team packed with quality and experience has at least made a start on fixing this iconic firm lost for years in the retail wilderness. 

A 2.4% decline in like-for-like Clothing & Home sales during the 13 weeks to 29 December looks bad, but many had expected worse, and it is less than the 2.8% drop this time last year. A 4.8% slide in total sales reflects store closures. Encouraging is the 14% growth in online sales, although there is clearly much more that could be done here. 

Food sales were also tipped to fall again, so a 2.1% like-for-like reduction matches forecasts. Six months into a major revamp of the food business and lower prices, which clearly impacted on sales, have just begun to benefit volumes. Business was 'solid' over Christmas and most stores grew like-like-like sales over the festive period. Marks seem confident that improvements here will become more obvious in 2019.

Source: TradingView (*)  Past performance is not a guide to future performance

Comments from chief executive Steve Rowe along the lines of "steady with some early encouraging signs" should give comfort to long-suffering shareholders, although it's maybe not yet the catalyst for short-sellers to close positions.

Crucially, full-year guidance on margins, store closures, costs and spending remain unchanged. That will be music to the ears of shareholders banking on Marks maintaining the generous dividend and 7% yield.

• Why retail sector shares rule the roost in 2019
• What's to cheer in Sainsbury's Christmas results?
• Retail sector latest: Greggs, Ted Baker and an 11% dividend yield

There are no bells and whistles here. The numbers don't look great, but it could have been worse. Crucially, there are no shocks, and a lot of bad news is already priced in. That Marks tells us trading conditions are challenging should surprise no one. 

The focus now switches back to the five-year plan and fundamental overhaul of a business with an image problem.

*Horizontal lines on charts represent levels of previous technical support and resistance.