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Marks & Spencer Third-Quarter Results – What The Analysts Said

Marks & Spencer has posted a 0.2% increase in like-for-like sales in the third quarter of its financial year, with its Food operations seeing 1.4% growth.

Commenting on its performance, Steve Rowe, chief executive said, “We delivered an improved performance in Q3 across both main businesses. The Food business continued to outperform the market and Clothing and Home had a strong start to the quarter."

Here's how leading retail analysts viewed the company's performance:

Kate Ormond, GlobalData

‘‘Having previously offered hope by reporting an improved clothing & home performance in October, with full price and planned promotional sales rising 2.7%, the division has failed to maintain momentum throughout the rest of Q3 with LFLs falling 1.7%.

"While there were undoubtedly distractions hindering non-essential retail spending late last year, not least the general election, it is clear that M&S remains unable to excite shoppers enough to buy. The retailer maintains that there are signs of recovery in womenswear, but now interestingly points to menswear weakness as the problem, while gifting also underperformed.

"There are silver linings within these results however: food has performed well, with LFLs up 1.4%, helping to lift total UK LFLs to positive territory at 0.2%; and overall full year profit guidance remains unchanged, though gross margin will likely come in towards the lower end.

"In food, M&S’ focus on value has again borne fruit, with volume improvement especially over the 2-week Christmas period. Though CEO Steve Rowe laments issues with waste and supply chain within its food business, its transformation strategy is evidently more effective than in fashion."

Richard Lim, Retail Economics

"In a tough market, these figures signal a much-improved performance from the retailer and could signal the green shoots of recovery in the ongoing transformation of the business.

“Food performed particularly well, benefitting from stronger underlying household finances but consumers also responded positively to more competitive pricing. It appeared that shoppers were prepared to indulge that little bit more this Christmas on food if they spotted value for money.

“While clothing and home lagged overall growth, it still improved on previous performances. The major disappointment came in the online business that barely showed any meaningful signs of growth. Integrating a seamless digital proposition remains the key challenge for the retailer.”

Russ Mould, AJ Bell

“Marks & Spencer has been trying to turn its business around for some time. Chief executive Steve Rowe is getting more optimistic in every trading update but the market remains sceptical.

“Having said in November that the transformation plan was running at a pace and scale not seen before in the business, Rowe now says Marks & Spencer has delivered an improved performance in the third quarter and changes made in 2019 have ‘arrested’ the worst of the issues seen in its first-half period.

“However, the turnaround is far from complete as the clothing proposition is still spluttering and a key concern is that its online sales growth is significantly lagging much of the peer group.

“When someone like Next can issue very strong online clothing sales growth, why isn’t Marks & Spencer doing the same? It has a strong brand and significant scale, yet one negative point is that its distribution capabilities seem to be letting the side down. One would expect a lot more money to be invested into distribution and warehouse in the coming years.

“Chairman Archie Norman hasn’t been afraid to make significant personnel changes to the business in order to find the right team, but it remains a long road to travel before we can truly declare a successful turnaround of Marks & Spencer.

“It must fix stock availability problems, reduce the size of its store estate, improve distribution capabilities, sharpen the online proposition and make sure the food joint venture with Ocado is perfectly executed. At some point it is feasible to suggest Marks & Spencer could be a much stronger business. You just need to keep waiting while all the problems are ironed out.”

Clive Black, Shore Capital

"Marks & Spencer has delivered positive quarterly UK like-for-like sales, albeit just at 0.2%, the first in three years (Q3 FY2017), which set against the broader food and non-food retail environment in the 13-weeks (13W) to the 28th December 2019, is credible to us.

"Sales progress was driven by Food (+1.4% LFL), but Clothing & Home (C&H) could not sustain early quarter progress, LFL down 1.7% (online disappointed in our view, at +1.5%). Whilst there are many moving parts within the P&L, such as lower operating costs, food waste leads us to reduce our FY2020 CPTP & EPS expectations by 2.6%.

"M&S maybe entering one step forward, one step back territory, which is much better than one step forward, three steps back of old. If so, brighter times could be ahead, particularly if a more certain and confident UK shopper emerges after the election. Maybe we now have two swallows albeit spring never mind summer has not yet arrived."

© 2020 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.

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