M&S profits slide while Steve Rowe promises further transformation: This is how the City reacted

 
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M&S beat market expectations but still saw like-for-like sales drop (Source: Getty)

Marks and Spencer beat market expectations slightly this morning, despite a five per cent slide in profits.

Shares initially spiked more than two but were down three per cent at time of writing.

This is how the City has been reacting to the news:

Christmas will be the real test

Neil Wilson of ETX Capital said that retailers are jittery over Christmas, and M&S will have to beat solid sales growth in 2016. "Paddington needs to deliver," he said. "From the statement however it is unclear what exactly management thinks regards Christmas and this could be a sign of nervousness about the slacker consumer market.”

Food is still hot despite pressures

Ray Gaul, vice president of Kantar Retail, said: "What will probably get lost in the conversation around non-food and Paddington Bear is that the Food division is performing well despite an increasing number of obstacles.

"Management is clear on these challenges and appears to be ready to take on both Aldi and Lidl who have increased the quality and the number of options available to consumers in their meals-for-tonight ranges. Likewise, the company appears confident that they can compete with Tesco and Morrisons who have made significant strides improving their premium own-label offers.

"Amazon’s takeover of Whole Foods puts a new competitor in the frame. It will certainly be interesting to see how the ‘meals for now’ competition heats up with M&S’s newly launched home delivery programme coming out of testing phase right as Amazon’s Whole Foods integration programme comes to fruition. The expectation should be to see some sparks fly."

Chairman Archie Norman is crucial to restructuring

Clive Black of Shore Capital said of M&S's new chairman: "We expect Mr. Norman to bring some restlessness to M&S, but also insight and perspective, which should be able to help Mr. Rowe engineer the cultural and operational change that is demonstrably necessary if top-line progress on a structurally lower cost base, with a step change in asset utilisation, is to come through. That the business is on a better course is clear to us but that there is a quick fix, as we have seen at Tesco, for example, is also so."

CFO Helen Weir's departure is another setback

Mark Photiades at Cantor Fitzgerald said: "We continue to believe the scale of the task ahead to turn around the fortunes of the business should not be underestimated and prefer to err on the side of caution."

He added: "News this morning of the departure of CFO Helen Weir to pursue “a plural career” follows the departure of clothing & beauty director Jo Jenkins last month. We view this as another setback."

All eyes on Steve Rowe to deliver

Julie Palmer, a parter at Begbies Traynor said: “After reporting a significant drop in profits back in May, CEO Steve Rowe’s turnaround plan seems to be gathering pace, with the closure of under-performing stores and reduced promotional activity in the Group’s struggling clothing division starting to deliver results, albeit slowly."

She added:"However, in the face of rising pressures on consumer spending, squeezed margins and increased competition from online rivals, clearly Steve Rowe needs more than just a marmalade sandwich under his hat to pull M&S out of its current sticky patch.”

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