Tuesday preview: M&S food sales 'concerning' ahead of quarterly result

Marks & Spencer will on Tuesday provide an update on its first quarter trading alongside its annual shareholder meeting, with a retail-themed week also seeing sector data from the BRC-KPMG monthly retail sales monitor survey.

Back in May, chief executive Steve Rowe, a year and a half after he was promoted to the top job, reported a sobering 64% plunge in profits for the year to 1 April thanks to a big accounting hit from changes to its pension scheme, international stores, and UK head office.

Divisional sales were nothing to write home about either, with food like-for-like sales down 2.1% in the final three months of the year and GM sales by 5.9%. UK LFL store sales crumbled 3.6% in the fourth quarter to combine with international LFL sales down 1.8% and online sales up 7.6% to drag total UK LFL sales to a 1.9% decline for the full year, with group LFL sales declining 2.1% over the year.

However, the timing of Easter was an issue, as in the first quarter of this year there will be the weeks either side of the Easter weekend, while in the prior year neither of these weeks fell in the first quarter.

Underlying LFL UK growth was closer to 0.2% in the final quarter, Barclays calculated, and so there should be a timing benefit of perhaps 0.5/1.0 percentage points for food sales in the first quarter.

"We would also expect food inflation to have contributed a little extra to the sales performance, although likely less than might be the case for the wider food retail sector."

The troublesome Clothing & Home department sale saw LFL sales shrink 5.9% in the fourth quarter, though calendar effects were estimated to have negatively impacted this even more, with Barclays putting underlying LFL growth at circa 2.1%.

"Although Clothing comps look extremely weak from 1Q last year, this was mostly due to the shift in the summer sale to July. We are optimistic about the relative improvement in M&S’s Clothing performance but the wider market seems to remain difficult – therefore we assume a LFL sales decline of -1.5%."

UBS forecast flat food LFLs and a 2% drop for general merchandise as it advised clients on what to look out for: "At this early stage, first half profits could again be under pressure.

"Group LFL is likely to remain negative. Food gross margins will be lower, and there will be a bias on [operating expenditure] growth to the first half from the timing of staff pay awards, IT and depreciation costs. These are unlikely to be offset by a stronger Clothing & Home gross margin."

Credit Suisse felt trading "may not look all that bad" in the quarter, expecting 0.2% growth for Clothing & Home and 0.5% for Food helped by the Easter timing and easier comparatives.

"But the UK environment is likely to remain tough. We assume that over the next 12 months the environment will remain challenging for M&S in the UK with increased competition in both clothing and food and softer demand," analysts wrote, forecasting full-year LFL for Clothing & Home to fall 1.5% and Food to be up just 1%, below inflation.

Tuesday July 11

INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Wholesales Inventories (US) (13:30)

UK ECONOMIC ANNOUNCEMENTS
RICS Housing Market Survey (00:01)

INTERIMS
Amino Technologies, Low & Bonar, Polar Capital Global Financials Trust

FINALS
Collagen Solutions, Gateley (Holdings), Ilika, Polar Capital Technology Trust

TRADING ANNOUNCEMENTS
Galliford Try, Gocompare.com Group, Marks & Spencer Group, Pagegroup, Workspace

AGMS
JPMorgan Euro Small Co. Trust, LondonMetric Property, Marks & Spencer Group, Northern Investors Co, Palace Capital , Perpetual Income & Growth Inv Trust, Pets at Home Group , Shires Income, U And I Group, Young & Co's Brewery 'A' Shares, Young & Co's Brewery (Non-Voting)