Marks & Spencer clothing sales ripped to shreds in first quarter

Marks & Spencer saw a huge drop in clothing sales in the first quarter as new chief executive Steve Rowe's recovery plan for general merchandise took hold, though he remained confident about meeting full year guidance.

The FTSE 100 retailer was forced later on Thursday to admit a mistake in its results statement, clarifying that group sales in the 13 weeks to 2 July fell 0.4% on a reported basis and 0.9% on a constant currency basis.

Sales from the Clothing & Home division, the group's achilles heel in recent years, hobbled the overall numbers with a surprisingly bad 8.9% slide in LFL sales in what was acknowledged as a "weak market".

"A key part of our recovery plan for Clothing & Home is lowering prices and reducing promotions," Rowe said. "As a result, we ran fewer price promotions while continuing to lower prices to deliver real value to our customers, and moved the summer sale to July.

"We knew our actions would reduce total sales but we are seeing some encouraging early signs."

As planned, the summer sale began on 5 July, two weeks later than last year, with Rowe's plan to reduce the number of promotional events during the quarter, including just one 'cyber day' compared with six last year.

Marks' food arm continued to outperform the wider grocery market and keep the group on a relatively even keel, rising 4.0% although LFL sales were down 0.9%, of which 0.5% was due to Easter timing. For the thousand clothing lines re-priced in the fourth quarter, Rowe pointed out that there had been "strong sales growth".

On the fallout from the EU referendum, he said it was "too early to quantify" the fallout from Brexit but directors were confident in the strategy.

International sales rose 6.1% on a reported basis and were up 0.7% at constant currency.

On the outlook for the full year, Rowe kept his previous guidance unchanged, with the planned reduction in promotions and the different timing of the summer sale accounted for around 5% of the Clothing & Home decline and therefore baked into plans and the previous guidance

Retail analyst Nick Bubb was distinctly unimpressed. "With the City looking for a LFL decline of at least 4%, despite weak comps, Marks & Spencer was expected to have gloomy news about Q1 clothing sales to report today," he said. "But the news is horrible, with Clothing and Home LFL sales nearly 9% down in the 13 weeks to July 2nd Food is also rather disappointing."

Broker Canaccord said: "M&S remains a business in transition under new CEO, Steve Rowe. The market awaits the strategy for International and the UK store portfolio, due for delivery later this year at the interims.

"Combined with the hit to sterling and the potential impact on the cost of overseas product purchases in FY18, when current hedges unwind, there is much uncertainty on the medium-term trading prospects of M&S."

Analysts at Shore Capital said they were keeping their recently downgraded forecasts unchanged, looking for pre-tax profits of £624m, earnings of 31.3p per share and a dividend of 19.5p per share.

"As such, the stock is trading on a FY2017 PER of 9.4x, and EV/EBITDA multiple of 5.2x and is forecast to yield 6.6%."

Shares in M&S, after an initial fall, were up 0.6% to 295.9p with 90 minutes left of trading on Thursday.