M&S reins in clothing decline amid Q1 results

Randall Padilla
July 12, 2017

"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", Chief Executive Steve Rowe said.

LFL clothing and homeware sales fell 1.2% in the 13 weeks to 1 July and food sales were down 0.1%, dragging UK LFL sales to 0.5%.

In the quarter, Clothing & Home revenues dropped 0.5 percent on a reported basis and 1.2 percent on a like-for-like basis.

Its food halls also saw a better quarter, with same-store food sales 0.1% lower.

Sales were also supported by Easter falling later in the year.

"It is a disappointing food number given we have been seeing increasingly resilient United Kingdom figures from most of the grocers", said Shore Capital analysts Darren Shirley. "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".

Despite the £272 million contribution from its worldwide estate, the department store chain closed 28 of its 58 global stores, seeing a four per cent decline in sales on a constant currency basis.

Despite the small decline in Clothing & Home, M&S said sales of full-price items in the division grew by 7%, as it reduced the number of promotions, and there was no clearance sale in the quarter compared with one a year ago.

Part of the fall came as it opened Simply Food stores near existing shops, which impacted some sales, while the group also cut back on promotions.

Mr Rowe said he hopes clothing and home sales will begin to turn positive towards the end of the year.

But Vinay Sharma, a senior trader at ayondo markets, said: "Investors are clearly disappointed in today's figures and despite chief executive Steve Rowe's assurances that they "remain on track", we are seeing a lot more sellers in the stock than buyers this morning".

Global sales were up by 3.8% thanks to the weakness of sterling - but down by 4% when currency fluctuations are taken into account.

The immediate market reaction has been to sell M&S shares on the back of this news, and the share price continues to linger below the 20-day moving average, which is a bearish sign.

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