Marks and Spencer (LON:MKS) issued its third quarter update this morning and it was disappointing, as total UK sales dropped by 7.6%. The Marks and Spencer share price, which has been slowly gaining after taking a hit in 2020, will now come into focus again.
The M&S food business has traditionally been the breadwinner of the group and it reported a 2.6% increase in UK like-for-like sales. The growth rate was an improvement on last year’s reading of 1.4% but clothing and home revenue tumbled by a damaging 25.1%.
Within the clothing and home division, in-store sales slumped by 46.5% but online sales jumped by 47.5%, cushioning the blow. Overseas revenue fell by 10.4%. The pandemic has caused major disruption to traditional retailers but the other groups fared far better, with rivals Sainsbury’s reporting a sales rise by 8.6%.
M&S share price still recovering
In early November, the M&S share price fell to its lowest level since May, but then a string of positive news stories in relation to vaccines for the coronavirus lifted sentiment across the board. Since the lows of early November, the Marks and Spencer share price has rallied in excess of 55%. While the stock holds above its 50-day moving average at 126p, the broader positive trend should continue. Resistance might come into play at 150p. A break below 16p might see it target 100p.
In November Marks and Spencer revealed its first ever first-half loss. The adjusted pre-tax loss was £17.4m, which was a massive drop from the £176m profit that was posted last year, but keep in mind that the consensus estimate was for a loss of £78m. Group revenue dropped by 15% to £4.1bn.
Ocado (LON:OCDO) partnership a silver lining
The company’s partnership with Ocado Group PLC (LON:OCDO) performed very well in H1, as retail revenue jumped by nearly 48%. M&S confirmed that the Ocado business accounted for £38.3m profit, so it was clearly a worthwhile agreement. As is typically the case with the firm, the M&S food division was the standout performer of the wider group as adjusted operating profit increased by 19%.
The clothing and household unit has traditionally underperformed, but the unit has seen a recovery in activity thanks to the lifting of the lockdown. In the first quarter, clothing and household revenue tumbled by 61.5%, while it the second quarter in fell by 21.3%. M&S was already restructuring the clothing and household business in advance of the pandemic and it was confirmed that the process is going well.
Caution over post-Brexit tariffs
Marks and Spencer confirmed that because of the UK-EU free trade agreement, the group will not incur tariffs on its core UK sales, although it cautioned there is the potential for tariffs on some of its range that it exports to the EU. Tougher restrictions have been introduced in the UK, and Marks and Spencer warned that near-term trading is challenging.
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