Shares in Marks & Spencer fell 5.7% following the release of its Christmas trading statement. The results showed like-for-like (LFL) sales trends in both its main divisions, Food and Clothing & Home, have weakened from those reported earlier in the year.
We can't help but feel for M&S.
Just as sales trends in the beleaguered Clothing & Home business show signs of improving, the Foods business, previously the shining light, stumbles. Competitors are gaining ground and the customer's spending power is falling.
Even the weather has been against the group. An unseasonably warm October impacted results in the Christmas period - although since rival Next reported the exact same trend this shouldn't have come as much of a surprise.
Nonetheless, it would be foolish to attribute M&S' decline to bad luck. Clothing & Home LFL sales have been going backwards for years.
With this in mind, we think CEO Steve Rowe will have his work cut out to 'make M&S special again'. His words might be a bit clichéd these days but they do encapsulate the challenge of breathing new life into a business that has fallen flat after all those years of magic and sparkle.
Phase 1 of the turnaround got the ball rolling with the closure of underperforming UK and international stores, M&S has set its sights on the next stage. Cost savings and improving supply chains are pretty standard goals, but the targets for increased digital capacity catch the eye. In the medium term, M&S wants to generate a third of Clothing & Home sales online.
This may be ambitious, but given the way retail is going, we feel it's a worthy goal. It just feels a bit late.
The difficulties in the Food business mean that while new stores will still be opening, the emphasis is shifting to improving those that are up and running already. This seems sensible, but it does put the pressure on Clothing & Home to reverse its recent poor performances.
M&S shares trade on 11.5 times forecast earnings per share, and offer a prospective yield of 6%.
Total UK sales rose 1.1% to £2.9bn as new Food store openings offset the impact of falling like-for-like sales in both Food (-0.4%) and Clothing & Home (-2.8%). International sales fell 9.8% to £309m, driven by store closures. This left total group sales flat at £3.2bn.
M&S says an unseasonal October impacted sales in Clothing & Home, and led to more stock being carried into the December sale.
In the Food business, price cuts before Christmas and a strong performance from seasonal lines helped late trading. However, the business continues to feel the pressure of tighter consumer budgets.
Full year guidance remains unchanged. On the day of the news, analysts were forecasting underlying pre-tax profits of around £583m.
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