M&S is a ‘buy’ despite flat sales figures

Otmane El Rhazi from Mindful Money » Shares.

As Marks & Spencer reports mixed results this morning, Ian Forrest, investment research analyst at The Share Centre, explains what it means for investors…

This morning, a mixed trading update from Marks and Spencer did not prevent shares in the UK retailer from rising after the market opened. Overall like-for-like sales in the first quarter were flat, whilst the food division remained solid with a 0.3% rise and general merchandise fell back 0.4%. The company reassured investors that the gross profit margin in general merchandise was on track to reach the full year target.

In-line with general consumer spending habits, the group saw its online sales at M&S.com soar by 38.7%. While the sales performance in the general merchandise division is disappointing, the profit margin currently has more scope for improvement and that is still forecast to happen this year.

Marks & Spencer’s results reflect the ongoing progress general retailers in the FTSE 350 have made as consumer spending continues to improve. Those who reported in the first quarter saw revenues climb by 5.1% compared to a year ago, taking £7.1bn at the tills. However, profit margins have been sacrificed to achieve this growth. While sales rose in the sector, profits after tax were down nearly a quarter in the year – falling to just £177m.

Marks & Spencer maintained its overall guidance for the full year so we continue to recommend the shares as a ‘buy’ due to the strength of the group’s food business, the significant potential to increase profitability in general merchandise, rising disposable incomes in the UK and the healthy dividend.