Shares in Marks and Spencer (LSE: MKS) jumped 8.4% in early trading after the company reported good progress in its lagging Womenswear business and continuing outperformance in grocery sales.
The multi-channel retailer grew food sales by 3.6% after 17 net store openings. Growth was not entirely attributable to increased square footage, however, with the department experiencing a modest 1% increase in like for like revenue, a healthy sign when compared to competitors such as Tesco who seem unable to arrest a decline in market share.
Management attributed the 20th consecutive quarter of like-for-like growth to the groups strategy to focus on quality food and innovation. Further progress was made towards this offering with 1,000 new lines being launched in the first half of the year. Improvements to operational execution also delivered a stronger gross margin for the business. Management reiterated confidence in this strategy amidst uncertainty in the sector, saying,
While the competition continues to intensify in the supermarket space, rather than joining the race to the bottom on price, we are focused on developing top-quality ranges that are competitively priced.
General merchandise reported a 2.3% fall in sales after unseasonal trading conditions in September reduced sales in the Autumn and Winter clothes ranges. Home sales were also down in the first half, which management blamed on a poor M&S.com performance. However, Womenswear experienced a 1.3% sales growth in the first half, with an improving trend through the first 5 months until it too was affected by weather. Management have invested significant sums into the department, including improved quality and style ranges that have been well received by the fashion press.
M&S.com suffered another fall in sales, although management noted the 6.3% decline was less than previous periods and expected the online store to return to growth ahead of the Christmas trading period.
General Merchandise reported a 150bps gross margin improvement driven by a more efficient use of the companys purchasing power and lower discounting participation. Food gross margins increased to 32.7%, up 25bps.Overall, this resulted in a 50bps increase to UK gross margin.
Rising margins offset falling clothes sales to result in a 0.4% fall in pre-tax profits. Management increased the interim dividend by 0.2p to 6.4p per share after continuing free cash flow growth. The company also paid down 200m of debt during the period, leaving total debt of 2.4bn.
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Zach Coffell has no position in any shares mentioned. The Motley Fool UK owns shares in Tesco. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
