tinyfav.com February 23, 2018

Marks & Spencer's turnover thrives thanks to food

12 July 2017, 12:43 | Melanie Burgess

Marks and Spencer Dinendra Haria REX Shutterstock

Marks and Spencer

"Trading in the first quarter was in line with our expectations and we are on track with delivery of the plan we announced previous year", Chief Executive Steve Rowe said.

The group's food sales were lower than expected and remained in the red despite surging inflation, which M&S said was running at around 2% in its first quarter.

Perhaps more worrying is that analysts are starting to question whether M&S is falling behind its peers, particularly in food sales, which fell 0.1% on a like-for-like basis, below rivals such as Sainsbury and Tesco. Not only did the clothing and homewares sector see another 1.2% drop in sales, the second consecutive decline, but the all-important food sector also saw a decline in sales, dropping 0.1%, whereas estimates had looked for a pick-up of 0.6%.

Meanwhile, food like-for-likes stayed flat in the first quarter, showing a marginal 0.1 per cent dip. He also argued that the overall United Kingdom clothing market was more promotional than a year ago, which is hurting M&S, however he seemed confident that like-for-like clothing sales should move into positive territory later this year. "Trading on a FY2018F PER of 11.5x and an EV/EBITDA multiple of 5.6x, with a dividend yield of 5.7% (1.5x covered by EPS and assuming an unchanged pay-out year-on-year), we reiterate our HOLD stance". "Overall, the sales numbers are modestly below expectations but the commentary is reasonably encouraging with new Simply Food stores performing well and the increase in full price clothing sales sounding positive for profit implications".

In total, sales across the business, including its global operation, increased by 2.7% to £2.5bn.

Rowe has slashed the number of clothing promotions it runs and said full price clothing sales - a guide to profitability - had increased 7%.

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Steve Rowe, Chief Executive said, "Trading in the first quarter was in line with our expectations and we are on track with delivery of the plan we announced a year ago".

While LFL sales in food stores fell 0.1% amid the cutthroat grocery market, on a total sales basis food sales were up 4.5%, thanks to new outlets being opened.

"In our Food business, we delivered strong growth from new Simply Food openings, and are prioritising better ranging and stronger promotions".

British store chain Marks & Spencer's turnover grew several percent in the first quarter of its fiscal year 2017/2018.

The drop in clothing sales marks the second consecutive quarter that MandS has failed to meet low expectations, and raises questions over whether Rowe's plan to close 30 United Kingdom stores will be drastic enough in the face of a long-term sales decline.

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