Marks & Spencer's recovery stumbles after food sales blow

The City today ditched shares in Marks & Spencer after it reported a “puzzlingly disappointing” dip in food sales in its first-quarter.

The shares tumbled 14.9p, or more than 4%, to 324.1p, after M&S revealed a 0.1% fall in same-store food sales in the 13 weeks to July 1.

The slip in food — widely seen as the future of M&S — overshadowed a better-than-expected performance in clothing and homeware and shook confidence in the retailer’s turnaround under boss Steve Rowe.

Rowe, who took over as chief executive last April, blamed the performance on new stores cannibalising sales of some existing branches. Not being big in beer, wine and spirits meant M&S also missed out on a boost from the weather.

Analysts, who had forecast growth, pointed out that the drop came despite a 0.7% boost from the later Easter and compared poorly with recent growth at supermarkets Tesco and Sainsbury’s.

Peel Hunt said it was “puzzlingly disappointing”. “All the external conditions should have been favourable for M&S. Though inflation has emerged in food retailing in the UK, it doesn’t seem to have helped much here and we would fear that this is a minor market share loss.”

However, Rowe, who said M&S will improve ranges and sharpen promotions amid a competitive market, insisted that the business is “in the right shape”. The former shop floor worker has already announced plans to open more Simply Food stores and expand food halls in existing stores.

Clothing and home sales were down 1.2% in the quarter, better than the 2% drop HSBC had forecast and the 3.4% slide at M&S last year. Cold-shoulder and Bardot tops and natural fibres such as linen were among the strong sellers.

Rowe, who has cut the number of sales and promotions, highlighted a 7% rise in full-price sales. There were 27 fewer promotions in the quarter and no clearance sale, which would have added 2% to clothing sales.

The later Easter provided a 0.6% boost, but Rowe said that the recent heatwave had largely balanced out poorer weather in May.

“I’m delighted with where we are. We are absolutely on track,” Rowe said. He expects clothing sales to move towards positive growth later in the year.

Rowe said UK consumers are still feeling secure in their own personal circumstances, but there is a “very big difference” in sentiment on the economy.

“It’s volatile. I would broadly describe them as cautious with their spend and shopping for now.”

Investec analyst Kate Calvert said near-term uncertainty on consumer spending, market volatility and poor visibility on profits would keep the stock under pressure until evidence of a sustainable recovery emerged. “M&S is playing catch up in a difficult mid-market position,” she said.