London — Marks & Spencer (M&S) soundly beat forecasts for Christmas trading with its first quarterly rise in clothing and homeware sales in nearly two years, delivering a welcome boost for new CE Steve Rowe.

After taking the helm in April, Rowe instigated the latest in a long line of M&S recovery strategies, focusing on turning around the underperforming clothing and homewares business, and was rewarded on Thursday with an unexpected 2.3% jump in the division’s like-for-like sales in the 13 weeks to December 31.

That beat market expectations of a rise of up to 0.2%, while food sales also beat forecasts. Food was up 0.6%, against predictions of a slight fall.

Rowe said M&S had a "good" Christmas and that customers looking for clothes had responded to its "better ranges, better availability and better prices".

"We saw full-price increases in every single clothing division," Rowe said, adding it was the first time the 133-year-old company had gained market share in the full-price clothing market for about seven years.

The food operation, meanwhile, benefited from customers’ preference for premium products at Christmas, he said.

M&S shares rose by as much as 6% to a six-month high after Thursday’s update and were still up by nearly 2% at close.

Shore Capital analyst Clive Black acknowledged the "very welcome" improvement in clothing sales, but added: "This early win needs to become a trend for the stock to fulfil its undoubted potential."

Quality and Pricing

Rowe’s strategy focuses on simplifying product ranges, improving quality and pricing, with fewer discounted products.

"We have been listening to customers very carefully, making sure our merchandise is appropriate, getting those wardrobe essentials right … and it’s worked," he said. He said children’s clothes, cashmere and lambswool jerseys and lingerie — traditional M&S strengths — sold well.

A buoyant Christmas period for M&S was in contrast with a miserable season at Next, its closest competition in clothing and homeware.

Next, which has outperformed M&S for more than a decade, said on January 4 full-price sales in stores fell by 3.5% in the run-up to Christmas.

M&S said customers traded up in festive food, treating themselves to more than 100,000 of its chocolate pine cones in the last days before Christmas.

Sales of premium turkeys jumped by 11%.

Its numbers were helped by the timing of the period, with an additional five days of the busy post-Christmas sale falling into the quarter.

It estimated that timing had a positive effect of about 1.5% on clothing and homeware sales and about 0.3% on food.

Rowe remained cautious on the retailer’s outlook, saying fourth-quarter numbers would be adversely hit by the timing that helped the third quarter, as well as a later Easter, but the company’s full-year guidance remained unchanged.

Analysts expect M&S to report full-year pretax profit of £593m for the year to March 31, down from £690m in 2015-16.

Reuters

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