High street bellwether Marks & Spencer (MKS) is marked up 7.1p or 2.1% to 347.5p on a well-received third quarter update which includes the Christmas period.

CEO Steve Rowe unveils better-than-expected results from Marks & Spencer's clothing and homeware business, halting years of decline.

Better ranges, better availability and better prices all contributed to an improved performance and M&S also continued to substantially reduce discounting, including over Black Friday.

M&S's trading update is for the 13 weeks to 31 December.

BETTER THAN EXPECTED

'Overall this update was better than expected,' write analysts at investment bank Cantor Fitzgerald Europe.

'However, Steve Rowe’s new strategy will not, in our view, lead to a marked improvement in earnings over the medium term although it appears sensible and focussed on preventing any further steps down in profitability.

'In the meantime, the stock still does not look compelling value even after taking into account this update and is rated at 11.9x our full year 2017 earnings with a dividend currently yielding over 5%, which we believe is not guaranteed, if management decide to tackle its debt burden.

UNDOUBTED POTENTIAL

Over at Shore Capital, seasoned retail sage Clive Black comments: 'We would expect the market to respond warmly to this update, noting management’s balanced, nay cautious comments on the UK outlook.

'That said, there is a lot going on in the business and this early win needs to become a trend for the stock to fulfil its undoubted potential in our view, particularly with respect to the scope to harvest positive operational gearing.'

RECOVERY TRADE

Haitong's Tony Shiret says: 'We have been positive on M&S on largely tactical grounds, seeing CEO Steve Rowe’s strengths as execution based, allowing profit stabilisation and recovery against weak comparatives.

'At this stage we do not really believe that M&S will get to a point where it is capable of long term sales-based growth given its starting point and the relatively undynamic nature of what has been proposed so far in the UK. But we believe that today is a good day for Mr Rowe and the company. Obviously it makes the recent Next Christmas trade showing look quite poor.'

STRONG CLOTHING SALES

'John Ibbotson of Retail Vision writes: 'Forget food, for once the focus is clothing. A much stronger than expected third quarter performance from clothing will mean a lot to everyone at M&S.

'Food was always going to hit it out of the park but the real story here is the respectable performance of Clothing and Home. Yes, the performance of Clothing and Home needs to be caveated by extra sales days and the cold weather following 2015's mild winter.

'But what matters is the numbers are up. M&S has struggled with clothing for many years now and this resurgence will be celebrated.

'But it cannot yet be called a victory. 2017 will tell us whether it's a festive flash-in-the-pan or the beginning of a genuine fightback. Steve Rowe's plan may be working but there is a long way to go yet.'

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Issue Date: 12 Jan 2017