Why M&S and Tesco have emerged as festive winners - but only just

Marks & Spencer’s food business helped prop up sales at the high street stalwart after it achieved a “standout” performance over the festive trading period.

Marks & Spencer has been busy overhauling its store portfolio. Picture: Lisa Ferguson

The group, which is going through a major restructuring involving store closures and relocations as it battles tough trading conditions, said UK food revenues grew 1.5 per cent to £1.7 billion in the three months to the end of December.

In contrast, sales in the clothing and home division slipped by 2.7 per cent to £1.1bn in the period.

On a like-for-like basis, which strips out the effect of new stores and closures, UK revenue lifted a modest 0.2 per cent.

M&S chief executive Steve Rowe said: “The food business continued to outperform the market, and clothing and home had a strong start to the quarter, albeit this was followed by a challenging trading environment in the lead-up to Christmas.”

He added that “disappointing one-off issues” such as waste in the food business and the performance of its gifts range “held us back from delivering a stronger result”.

Arlene Ewing, investment manager at brokerage Brewin Dolphin, said: “A slight increase in UK like-for-like sales at Marks & Spencer suggests there is tentative progress in its turnaround plans – it is especially positive in the current UK retail environment.

“Unsurprisingly, the food business remains the main driver of growth and the tie-up with Ocado should support its potential for further expansion.”

Battle

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, noted: “Competition in the clothing and home space is at fever pitch, and it’s a battle M&S isn’t winning.

“Most striking is the fact online sales grew a paltry 1.5 per cent in the third quarter, lower than M&S expected, and due to the relentless discounting in the sector in December.

“But it’s not just external pressures. M&S proved it’s capable of getting its ducks in a row with womenswear, with a positive initial reaction to the autumn ranges – by comparison menswear and gifting underperformed. It would be fair to ask if at least some challenges are coming from simply not having the right items on the shelves. The food business is singing from a different hymn sheet.”

On a call with reporters, Rowe said that, although customers purchased a lot of M&S food, “we bought more than we sold”, but he promised that no food waste went to landfill.

The group stuck to its guidance, but warned that gross margins are likely to be at the lower end of expectations.

Online clothes sales failed to bring much Christmas cheer for M&S management. Online clothing and home revenue in the UK was up a lower-than-expected 1.5 per cent.

The business said it had to deal with competitors offering discounts to customers, and less furniture being dispatched.

In a bid to remedy the problems, M&S improved its search and rationalisation functions and launched an option for customers to pay in instalments.

International sales, which form a much smaller part of the business these days, fell 2.3 per cent to £251 million.

Meanwhile, Tesco has overcome a “subdued” consumer backdrop to scrape out a fractional increase in Christmas sales.

Britain’s biggest retailer said it had outperformed in a “challenging” market, delivering its fifth Christmas in a row of sales growth, albeit just 0.1 per cent in the latest period.

But while UK same-store sales grew in the six weeks to 4 January, it saw a 0.2 per cent dip in the 19 weeks covering both the third quarter and festive period.

Outgoing chief executive Dave Lewis, who recently announced plans to step down in the summer, said: “In a subdued UK market we performed well, delivering our fifth consecutive Christmas of growth.”

John Moore, senior investment manager at wealth firm Brewin Dolphin, said: “Tesco remains a slowly unfolding story of redemption.“The core heartbeat of Tesco – the UK business – is now getting stronger in terms of its operational and cashflow performance, thanks in no small part to the addition of Booker, its wholesale operation.”