M&S slump as food sales fall

INVESTORS gave the thumbs down to Marks & Spencer and Tesco yesterday as their turnaround plans were hit by mixed trading performances.

M&S felt the heat as its food business, for so long a counterweight to declining fashion sales, went into reverse in the third quarter as shoppers turned to competing premium supermarket offerings.

Food sales at its established stores in the 13 weeks to December 30 were down 0.4 per cent and its clothing and home business takings fell 2.8 per cent, with overall UK sales down 1.4 per cent. Shares dropped 22¾p to 301¼p.

Chief executive Steve Rowe, whose five-year transformation of the business includes revamping its supply chain and IT systems, said unseasonable mild weather in October had dented its clothing performance, while in its food business “ongoing trading pressures continued in the lead-up to Christmas as consumer spending and choices reflected righter budgets”.

Rowe, pictured, added: “I would describe the consumer as quite fragile and quite volatile and if there’s a reason not to spend, they take it.”

Shore Capital analyst Darren Shirley said: “Today’s update confirms the restructuring process could be a reasonably long and arduous one.” Tesco had enjoyed top billing among the “big four” grocers in Kantar market share data earlier this week but UK like-for-like sales growth of 2.3 per cent in the third quarter and a record Christmas left some observers underwhelmed.

A strong performance by its food business was offset by weak demand for products such as computer games and DVDs, while chief executive Dave Lewis also highlighted lost tobacco sales from the collapse of their wholesaler Palmer & Harvey.

Lewis said: “We have continued to outperform the market throughout this period, particularly in fresh food, thanks to our most competitive offer for many years.

“Incorporating Palmer & Harvey volumes and complexity during this peak period was challenging, putting further strain into our distribution network. These challenges took the shine off an otherwise outstanding performance for the period as a whole.”

Jefferies analyst James Grzinic described Tesco’s performance as “solid, but not quite the dominant display expected by some”.

Tesco shares fell 9½p to 202¼p.