- Like-for-like food sales up 8.9%
- Market share gains in clothing
- Cautious outlook prompts profit-taking
Retail bellwether Marks & Spencer (MKS) delivered ‘another good Christmas’ with sales records broken across the business as it gained market share in both food and clothing.
However, shares in the high street stalwart fell 5% to 358p as third quarter clothing, home and beauty came in light of expectations and management’s cautious outlook stoked profit-taking after a strong share price run.
Marks & Spencer warned the outlook for economic growth, inflation and interest rates is ‘uncertain’, with CEO Stuart Machin cautioning that his charge faces higher costs from forthcoming tax increases.
FOOD, GLORIOUS FOOD
The FTSE 100 retailer’s solid third quarter update revealed an 8.7% jump in total food sales to approaching £2.6 billion over the 13 weeks to 28 December 2024.
In the face of tough multi-year comparatives, like-for-like food sales fattened up 8.9% as shoppers flocked to the retailer’s premium food offerings over Christmas and Marks & Spencer continued to benefit from a more competitive core offer, with sales of its ‘Remarksable’ value range up 14%.
CHANGEABLE WEATHER HURTS CLOTHING SALES
Like-for-like clothing, home and beauty sales edged up 1.9%, a resilient enough showing in a declining market, with womenswear and menswear performing well, but investors were hankering after stronger growth.
Online sales grew by an impressive 12%, but this was offset by a decline in clothing sales through Marks & Spencer’s bricks-and-mortar stores, in part due to changeable weather.
Also letting the side down was the international arm, where sales fell 2.8% to £178 million amid challenging market conditions in India and the phasing of franchise shipments, though Marks & Spencer stressed ‘reset actions are underway’.
SHIFTING UP A GEAR
‘Sales records were broken across the business,’ enthused Machin, ‘with food recording its biggest day and clothing, home and beauty online its biggest week, but we’re not complacent - as a growth business it’s our job to break records.’
He added: ‘Transforming M&S is a marathon, not a sprint, and we go into 2025 shifting up a gear and raring to go as we accelerate the scale and pace of change.’
EXPERT VIEWS
Russ Mould, investment director at AJ Bell, observed that Marks & Spencer’s commitment to value is paying off with its customers.
‘While food was reassuringly strong, in-store sales of clothing were down, with online coming to the rescue to a certain degree,’ explained Mould.
‘Meanwhile, the international operations are doing little to justify their place in the wider group. Dragging Marks & Spencer’s shares down is the gloomy tone adopted in the outlook statement. While understandable given the impact of the Budget changes, sticky inflation and higher for longer rates, the comments chime with the current bleak mood around the UK’s economic prospects. Notably, Marks & Spencer is more reliant on discretionary spend than Tesco (TSCO), given its much more meaningful presence in non-food categories.’
Chris Beckett, head of equity research at Quilter Cheviot, noted that while Marks & Spencer has achieved profit growth, there are headwinds ahead.
‘Rising National Insurance costs and broader cost-of-living challenges are expected to eat into measures designed to boost margins,’ warned Beckett.
‘Overall, it was a good Christmas period for M&S, but management remains cautious in its outlook, and the stock has de-rated accordingly. While the company is clearly on a positive trajectory, external pressures may weigh on its ability to sustain upgrades in the near term.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.
