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M&S misses out on food revival in fresh headache for CEO Rowe

Tuesday, July 11, 2017 - 20:05

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The crutch that is Marks & Spencer Group's food division is providing less of a prop.

[LONDON] The crutch that is Marks & Spencer Group's food division is providing less of a prop.

Same-store sales in M&S's food business fell 0.1 per cent in the first quarter, missing analyst estimates for a 0.6 per cent gain and raising question-marks over the growth of a business whose expansion has for years compensated for shortcomings in the clothing department. The drop was the second in succession after a 2.1 per cent fourth-quarter decline.

"Most people think that the future of Marks & Spencer lies in selling more food than clothing," said independent analyst Nick Bubb.

"The fall in food sales is a setback."

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M&S shares fell as much as 4.6 per cent in London to the lowest in more than three months. Food's faltering performance was all the more concerning given that the company's grocery peers have seen a resurgence in sales on the back of food price inflation and a spell of hot, sunny weather.

Chief executive officer Steve Rowe suggested that competitors are benefiting from their own turnaround efforts, something that M&S hasn't needed.

"We have been in fairly long-term growth in food whereas others are playing a recovery game," Mr Rowe said on a call with reporters.

"We are continuing to gain market share. We're quite happy about it."

M&S failed to share the boost to grocery sales from the hot summer weather because alcoholic drinks comprise a lower proportion of its overall sales, Rowe said. Efforts to cut back on waste reduced the availability of meat and fish, he also said.

Without the Easter holiday, which flattered this year's sales performance by about 0.7 per cent, the performance would have been worse still.

Another difficulty for the food business is cannibalisation. An aggressive store opening plan is eating into demand at existing outlets, Mr Rowe said.

The company plans to open another 250 new Simply Food outlets by 2020, he said.

The performance of food is "puzzlingly disappointing", according to Jonathan Pritchard, an analyst at Peel Hunt.

"All the external conditions should have been favorable for M&S, but the food showing is not a good one."

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