Bolland's bought more time, but what does M&S need now?

Harriet Green
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The trading update from high street staple Marks & Spencer has been described by stockbroker Shore Capital as “frankly, quite mellow”.

The encouraging figure was for clothing sales, which rose 1.3 per cent and 0.6 per cent on a like-for-like basis in the first quarter of 2014.

The group reported sales up 1.9 per cent, with like-for-like revenues down 0.2 per cent.

General merchandise sales picked up a modest 0.2 per cent, but were down 0.6 per cent like-for-like. The Bloomberg consensus was for a 0.9 per cent fall.

Earlier, Stephen Springham of Planet Retail, said the results offer a “crumb of comfort”, speaking on Radio 4’s Today programme. Chief executive Marc Bolland's bought himself more time to work on the store's turnaround, but today's numbers don't necessarily answer as many questions as they throw up.

The contrast between the performance in clothing and that of general merchandise means a pretty unimpressive performance for other areas under the latter, like home sales. M&S doesn’t usually report separate clothing sales, but is “obviously trying to draw out the positive”, commented Springham.

Trader James Abbott of Accendo Markets says there’s some way to go before “getting too excited” about stock. Shore Cap retains its hold stance, saying it “likes a lot” of what the store’s done in food, international, infrastructure and online, but adding that the stock rating isn’t very demanding anyway.

Food, incidentally, saw a 0.1 per cent increase from a year earlier. Not overly impressive, but affirming, given the performance of fellow food retailers, many of whom have been moving backwards.

More focus on womenswear

For Shore Cap, though, the “heartbeat” of the retailer is apparel and ladieswear, stressing that work there is what's needed:

There is clearly a lot more to do for M&S to do stem market share decline in ladieswear in the UK on a sustained basis.

M&S needs to deliver stronger trade and cut out what tend to be small market downgrades.

Trade has been “distinctly dull”, says the stockbroker, but progress across the board has been "encouraged by the company’s comments on recent womenswear activity" - those comments just need to translate into action, and sales.

Bolland has been under persistent pressure to improve the fortunes of the frequently-struggling company. Heavy promoting - think Emma Thompson and Annie Lennox - and continued cost-cutting have boosted clothing, particularly women's, but it’s unlikely it’ll just be Shore Cap asking how sustainable that approach will be.

The chief executive said this morning that, although consumer confidence has improved, he remains cautious about the UK market.

The company expects full year UK gross margin to be around 0.2 percentage points lower, with general merchandise margins weighing down improvements in food.

Cantor Fitzgerald has reiterated its sell recommendation this morning, focusing on the compentency of M&S's team when it comes to turning around womenswear:

We continue to believe it will take a number of seasons before the existing team is able to manifest a marked improvement in performance.

As several analysts have predicted, M&S shares have gained a small markup this morning, up over 2.5 per cent on the news.

Source: Google