Marks & Spencer today reported its strongest quarterly update for two years as a strong food performance balanced out continued weakness in clothing. There was mixed reaction from the City.
“Beyond the key focus of UK general merchandise, we must make mention and give credit to M&S for the performance of its food operations. Like-for-like sales growth of 4% is excellent in our view and it is pleasing to see the outperformance of the sector over the last quarter. With its exacting specifications and good reputation for high quality and provenance, M&S has maybe been a beneficiary of any customer switching surrounding the horse meat contamination in the first quarter of 2013.
“Shore Capital has been disappointed and concerned about the sustained under-performance of M&S’ general merchandise activities for some time now. The performance in the group’s core category and market has understandably masked what we deem to have been tight management of the group’s cost base, good progress in food, the creation of a sensible strategy for internationalisation and sound, if not stellar work, on multichannel development to our minds. Furthermore, we have kept our eyes firmly set on the prize that the completion of the current investment phase can provide for the group.” – Clive Black, Shore Capital
“Food like-for-likes of +4% is a strong result and general merchandise like-for-likes of -3.8% is better than -4.5% consensus. The continued outperformance of food, and the margin pressure this drives, means that we don’t expect consensus to change. We still have concerns about whether M&S’s clothing offer is becoming less relevant to its core shopper; this statement does show some signs of progress, however, and the shares should go higher today.
“Multichannel sales were 22.9% - this is much better than the lacklustre third quarter performance (+10.8%). These sales are likely to be less profitable, however, representing a dilemma for the company.” – Bethany Hocking, Investec
“The shares will likely respond well today. We are Buyers of M&S because we believe that in under six months M&S will be displaying a much stronger womenswear range and in under twelve months the website will migrate to a new, proprietary platform away from the current host, (competitor) Amazon.” – Jean Roche, Panmure Gordon
“The fundamental problem with M&S is that it still thinks and behaves like a middle market clothing retailer of yesteryear. Many attempts have been made to shift this attitude and it would be unfair not to recognise that some progress has been made. However, old habits die hard and M&S’s middle market DNA still shows through in so many ways. Sub-branding is not executed with anywhere near enough sensitivity and the personality of the various brands is indistinct and poorly targeted. Stock density is far too high in store, which creates a sense of product ubiquity and makes the shopping experience less pleasurable. Visual merchandising is often mediocre and even in newer stores there is a distinct lack of excitement and of taking the customer on a journey through the offer. In short, change on clothing has been nowhere near radical enough and the pace has been too slow.
“Ironically, the food business provides a template for how M&S should approach clothing. Here M&S is unashamedly directional; it does not try to be all things to all men. The stance, while recognising the need to provide good value for money, is strongly skewed towards the premium end of the market. Brand segmentation is clear and innovation ensures that various parts of the range are regularly refreshed. All of this is supported by a marketing effort that creates customer interest and genuinely reflects the strengths of the proposition. All of these factors have contributed to an impressive market beating performance over the last quarter.” – Neil Saunders, Conlumino