Marks & Spencer shares fell on Thursday after the company reported strong sales growth but didn’t increase profit guidance. The decision to leave profit guidance unchanged gave a cautious tone to an otherwise robust update.
As we noted in our Marks & Spencer festive trading update preview, today’s update was crucial for Marks & Spencer’s shares after a year of strong performance for the stock.
For shares to maintain the rally, investors would have to be convinced momentum in Marks & Spencer’s sales growth continued through Christmas and could continue into the new year.
Evidently, investors were not convinced of this, and Marks & Spencer shares were down over 5% at the time of writing on Thursday.
In our Marks & Spencer update preview, we said:
“Many investors will consider food sales growth the most important metric in the upcoming trading statement. Anything close to first-half growth of 14.7% will be seen as a win for M&S. Revenue for Q3 2023 was £3.6bn, and investors will hope this exceeds £4bn in Q3 2024.“
Unfortunately, total food sales grew by just 10.5% in the 13-week Christmas trading period, a big step down from food growth in prior periods. Sales for the period were £3.85bn.
Marks & Spencer investors book profits
Today’s announcement would always test the UK consumer’s propensity to splash out on expensive groceries during the festive season. Given the ongoing cost-of-living crisis, Marks & Spencer has done a ‘Remarksable’ job bringing shoppers through the door.
“In Food, M&S led the market on volume growth every month over the final quarter of 2023, with a 7% increase across the period. Larger stores performed particularly well as more customers turned to M&S for their full shop. And with cost-of-living pressures weighing on consumers at a historically expensive time of year, the group’s Remarksable value range has come into its element, with sales growing by an impressive 18%,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.
Chiekrie also noted a respectable performance in M&S’s clothing business amid an effort to revitalise the unit:
“In Clothing & Home, less stock has been making its way to the sale rack, resulting in higher average selling prices and a 4.8% rise in like-for-like sales. The group’s improving style credentials are partly to thank for this, pulling more shoppers through the door over the festive season. As is the group’s reshape programme, which looks to pivot stores to new locations and refresh existing stores to create a more productive estate.”
Marks & Spencer has achieved an astounding recovery over the past year, but signs that the growth rate is slowing have pushed some to book profits in shares that gained ahead of today’s announcement.
“Shares in Marks & Spencer rallied in the days before the results as investors looked at strong updates from Aldi and Lidl, plus a resilient showing from Next, and concluded that M&S could also do well,” said Russ Mould, investment director at AJ Bell.
“The shares have given back some of those gains on the trading update as investors with a ‘better to travel than arrive’ mindset bank some profits. There are also enough words of caution in the update to stall momentum in the share price.”
