"M&S has reported a tale of two halves," says Emily Salter, retail analyst at data and analytics company GlobalData

"M&S has reported a tale of two halves," says Emily Salter, retail analyst at data and analytics company GlobalData

UK retailer Marks & Spencer saw clothing and home sales decline by 25.1% for the 13 weeks to 26 December, hit by continuing restrictions and demand distortions related to the Covid-19 pandemic. While analysts note the segment was dealt a sharp blow against the backdrop of zig-zag lockdown policies, one suggests brighter days are on the horizon for M&S with tangible progress being made.

Emily Salter, retail analyst at data and analytics company GlobalData:
"M&S has reported a tale of two halves, with a healthy performance in its food division managing to prop up total UK sales of GBP2.53m while clothing and home floundered, paying the cost for its inability to adapt fast enough to changing shopping habits. After a terrible Christmas for clothing and home in 2019, 2020 leaves little to be desired despite an improved performance compared to H1 (-40.8%). M&S's recovery is slow versus other apparel players as it continues to be hurt by an online platform unable to make up for lost store sales (-46.5% in the period), unlike competitor Next due to its agile market-leading online proposition, and a lacklustre product offer.

"Though M&S's Q3 clothing and home performance was improving prior to the November lockdown (-16.8%) and following it (-19.4%), the closure of non-essential stores potentially until the end of March will see this recovery wiped out as it pays the cost of being a digital laggard. Its Never the Same Again programme is vital now, and the focus of M&S's actions must be to better adapt to shopping habits. For instance, it was late to the party to introduce brand partnerships such as Nobody's Child and Ghost, which launched with little fanfare.

"M&S should focus on elevating and boosting awareness of these brands instead of potentially buying a similarly struggling Jaeger which would be costly to turn around and do little to boost the retailer's fortunes. Additionally, the extension of its Goodmove activewear line to menswear and childrenswear after nearly a year of launching it in womenswear is too little too late, with little to distinguish the product in a crowded market."

Richard Lim, CEO of Retail Economics:
"Clothing and home sales were dealt a sharp blow against the backdrop of zig-zag lockdown policies over the Christmas period. But as shops were forced to close, consumers embraced the online channel which saw the retailer deliver impressive growth. It's taken some time to get the online channel fired-up, but the retailer appears to have benefited from a wave of new online shoppers. 

"Performance across the food business was disappointing given that many shoppers were looking to trade up given the restrictions. Many households have seen a significant boost in discretionary spending power as cancelled holidays, less commuting and fewer evenings out have forced families to save, especially the most affluent. This is the traditional M&S heartland and it appears consumers have decided to treat themselves elsewhere." 

Clive Black, analyst at Shore Capital:
"Marks & Spencer has issued what we deem to be robust Q3 FY2021 trading update with sales in both clothing and home and food coming through better than we and, consensus, anticipated. Lockdown 3.0 will negatively impact Q4 FY2021 trading (GBP25m per month), but the group is progressing at pace, we note a clean stock position and the successful GBP300m bond issue; year-end net debt should be down year-on-year.

"Hence, in a frustrating time, there is perhaps brighter light around M&S than there has been for some considerable time" – Clive Black

"M&S faces into CY2021 with further frustration and uncertainty with lockdown 3.0 in place. With full-line stores substantially restricted from trading and the travel and franchise food outlets negatively impacted too, the business will not make the financial progress anticipated at the interim stage. Whilst so, depending upon the length of the lockdown, it remains possible that wipe-out year FY2021 could still end with the group recording a PTP (pre-tax profit) whilst we are confident that year-end net debt (ND) will be lower year-on-year. M&S has not stopped transforming and a fully-fledged management team is doing so at pace, which to us augurs well for FY2022 when positive operational gearing on a restructured organisation should feed EBITDA, reduce debt and help drive the group to investment-grade status. Hence, in a frustrating time, there is perhaps brighter light around M&S than there has been for some considerable time."

In addition, Black notes despite the hit to clothing and home from lockdowns, underlying progress is evident.

"Clothing and home is clearly a much more challenged business through legacy and lockdown than is the case for food for M&S. We also see underlying progress, however, which when the market is uninterrupted is feeding into trading momentum and financial performance. So, good work on ranges and shape continues in markets heavily skewed by events; for example, formal wear sales are massively down whilst nightwear and casualwear are materially up.

"The simplification and long-standing move to a more trusted basis by shoppers is reflected in the removal of what have been negatively distorting blanket promotions and so full-price sales fell by only 4.8% in Q3. M&S also traded stock well with a much superior position at the end of Q3 compared to the times of lockdown 1.0; hibernated stock of cGBP200m at selling value is in place versus a previously anticipated cGBP600m. Frustratingly, the lockdown 3.0 brings the need to clear stock designed to be sold in Q4 FY2021, activity that will negatively impact the divisional margin although we believe that the underlying gross margin in clothing and home is going the right way."

Black adds the brand additions of Ghost and Nobody's Child to the M&S portfolio have performed well, which is encouraging and also refers to reports in the UK financial and trade media that the retailer may be interested in acquiring the Jaeger brand, which was within the Edinburgh Woollen Mills stable.

"There is no comment from the group on this story and it rightly does not comment on market speculation. However, we do believe that the business will seek to work with other branded partners where there is complimentary product online and in-store too and as opportunities arise acquisitions will no doubt be assessed as well."

In conclusion, Black adds: "The progress being made is tangible and we are pleased to be recording it after so much introspection, planning and external adversity. After this 'lost year,' as chair Archie Norman characterised it early into the pandemic, brighter times genuinely feel like they are on the horizon for M&S; something that the stock market has already started to identify."