Interactive Investor

Festive food sales help M&S, but clothes division drags

8th January 2021 10:08

Richard Hunter from interactive investor


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Lockdown put a strain on the supermarket – but investors remain optimistic.

The song remains the same at Marks & Spencer (LSE:MKS), with a strong food offering unable to offset a Clothing & Home unit in need of urgent repair.

As such, overall group sales fell by 8.4% in the three months to 26 December, with Clothing & Home dropping by 24.1% on a like-for-like basis and Food adding 2.6%. While both of those figures were better than expected, the news was compounded. Total international sales were down by 10.4% and the new world post-Brexit is likely to affect tariffs and bring in complex administrative processes.

The trading statement runs to Boxing Day. As such the current national lockdown, which is likely to remain in place for at least a couple of months, will put additional strain on the business as store closures bite. In this period, there was an in-store sales decline of 46.5%, although the removal of blanket promotions was positive for full-price sales and also improved the company’s stock position.

By contrast, the online business took up some of the slack, although not sufficiently to rescue the overall situation. Total sales for Clothing & Home online increased by 47.5%, including a doubling of full-price sales, while order fulfilment was untroubled by the extra volume.

In addition, and although not quantified, the performance of the joint venture with Ocado was described as strong, with Food growth overall being impressive given the restrictions of lower footfall, especially in town and city centres and ‘food-on-the-move’ sales.

In all, the update is somewhat uninspiring but largely to be expected.

The group’s ambitious plans as announced at the half-year results are in their early stages. Part of the planned transformation includes a rotation of the store estate, recognising that the success seen in the likes of retail parks rather than the high street may well be a permanent feature of physical shopping habits. As such, the group needs to consider a complete overhaul of its outlets.

But the shares have had a good run of late, having risen by 49% over the last six months. However, over the last year the shares are still down by 35%, as compared to a decline of just 3% for the wider FTSE 250 index.

Despite the enormity of its current challenges, let alone those yet to come, bulls of the stock remain optimistic. The market consensus of M&S shares as a ‘buy’ is still in force.


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