M&S surprises but jury remains out on turnaround effort

But is this genuine evidence of a turnaround at the bellwether, or a false dawn?

Many analysts appeared impressed by the headline numbers. Like-for-likes at the retailer’s struggling clothing and home division rose 2.3% in the 13 weeks to December 31.

In its food operations, like-for-likes increased 0.6%.

As Peel Hunt analyst Jonathan Pritchard said: “The medicine is beginning to work.”

Initially the market reacted positively, as M&S’s share price saw a healthy spike in early trading.

However, as analysts began to dig into the detail, the excitement wore off as the share price slid back.

Of the 2.3% rise in general merchandise like-for-likes, 1.5% of that was due to the extra days of trading M&S enjoyed due to the timing of Christmas.

“It’s far too early for Steve Rowe to be lighting a celebratory cigar”

Jonathan Pritchard, Peel Hunt

And in its food business, on the same basis, like-for-likes were up only 0.3%.

Nevertheless, there was plenty for boss Steve Rowe to talk up. He pointed to the fact that “better ranges, better availability and better prices” in its key clothing division were helping, despite a “difficult” marketplace.

Essentially, M&S is doing better on full-price sales. Colder weather must have also helped its sales of winter ranges.

However, Peel Hunt’s Pritchard warned “it’s far too early for Steve Rowe to be lighting a celebratory cigar though”.

And there’s the rub.

‘Playing catch-up’

Some analysts, such as Canaccord Genuity’s David Jeary, are concerned about the slow pace of change.

“The shape and rate of profit recovery remains unclear to us at best”

David Jeary, Canaccord Genuity

“M&S continues to be a work in progress, as indeed it has been for more years than we care to count,” he said in a note.

Despite M&S revealing in November plans to cut its number of stores and retreat internationally, Jeary added: “The shape and rate of profit recovery remains unclear to us at best.”

M&S has reported growing online sales but still has some way to go before it can match the capability of rivals.

“We remain of the view that Mr Rowe’s strategy is likely to end up being no more than a ‘steady the ship’ strategy”

Kate Calvert, Investec

Investec analyst Kate Calvert also remains unconvinced. “We remain of the view that Mr Rowe’s strategy is likely to end up being no more than a ‘steady the ship’ strategy,” she said in a note.

“M&S is playing catch-up from a difficult mid-market clothing position in a market we expect to slow in 2017.”

Like other fashion retailers, M&S is feeling the impact of the collapse of sterling in the face of Brexit, meaning pricing will come under pressure.

Rowe also sounded a downbeat note when warning that the retailer’s fourth-quarter numbers will be hampered by the timing of Easter this year. 

If Rowe can deliver a few successive quarters of positive like-for-likes, only then can we begin to talk about a genuine M&S turnaround.