There's a surprise improvement in clothing sales at retail giant Marks & Spencer (MKS) but the news isn't enough to stop the shares dipping 1.85p to 454.15p. That's because today's trading update reveals the eleventh consecutive quarter of falling general merchandise sales.


Speculation had been rife regarding a disappointing fourth quarter, especially given the distorting effect of this year's late Easter on the FTSE 100 retailer's flourishing food business. Encouragingly, the retail sector laggard's update demonstrates the huge investment in revamping clothing lines is at last paying off, relieving some of the pressure being heaped on embattled chief executive officer Marc Bolland (pictured below).


Web chart - M&S - April 2014

Over the 13 weeks to 29 March, group sales grew 1.9% with UK like-for-like sales down 0.2%. While same-store sales in the core general merchandise business eased off 0.6%, this was better than the market had expected and included an improving clothing performance.


Total clothing sales grew 1.3% with like-for-like sales rising 0.6%, boosted by a good reception to the latest womenswear ranges. Marks & Spencer's launch of a large advertising campaign to woo back female fashion customers is beginning to generate results, although the market will want to see fashion improvements sustained for another three or four quarters before turnaround talk becomes justified.




Additional highlights include positive updates on website M&, where total sales rose 12.5% and the international business, where the under-fire Bolland reports strong growth in 'priority markets' including India and China. The food business, set to benefit from space growth and international expansion going forwards, cooked up another tasty quarter against tough comparatives.


Taking some of the gloss off of today's clothing cheer is the cautious tone of Bolland's outlook statement and guidance that full-year UK gross margins will be down 20 basis points. This reflects heavy promotional pressures in clothing which have eaten into returns and negated food margin gains. Ahead of next month's (20 May) results, analysts expect annual profits to come in lower year-on-year and in something of a milestone, below those of big rival Next (NXT) for the first time.


Analyst reaction to today's update is mixed. N+1 Singer sticks with its 'buy' rating, citing 'the targeted transformation of the offer and improving in-store proposition.' The broker also points out that 'as a period of heavy investment draws to a close (stores, online, infrastructure) cashflow is now expected to dramatically improve'.


Shore Capital's well-followed analyst Clive Black retains his 'hold' rating. He writes: 'We like a lot of what is and has been done by management at M&S with respect to food, international, its internal infrastructure and potential online capabilities. Furthermore, the stock rating is not overly demanding. However, the heart beat of the retailer is apparel and ladieswear at that and M&S needs to deliver stronger trade and cut out what tend to be small market downgrades.'

Issue Date: 10 Apr 2014