Marks & Spencer and Tesco improve performance

As Marks & Spencer and Tesco update the market on their performance over the Christmas period Ian Forrest, investment research analyst at The Share Centre, explains what it means for investors.

Marks & Spencer and Tesco improve performance

The good news from retailers this week continued today with Marks & Spencer and Tesco reporting better than expected clothing and home sales.

Marks & Spencer’s overall sales were up 4.3% in the period and, interestingly, clothing and home sales were especially strong over the festive period, up 2.3% on a like-for-like basis. This was the first time they’ve risen for two years thanks to better product ranges, availability and prices.

Interested investors should appreciate that food sales were more sluggish with just a 0.6% increase and the company admitted that the figures were boosted this year by five extra days of the sale compared with last year.

These are good figures from Marks and Spencer today and have been welcomed by the market. Whether they mark a significant turnaround in the clothing and home business is still too early to say but the major programme of change announced last year may be starting to help the performance.

Interestingly, Tesco’s share price has fallen this morning due to relatively underwhelming Christmas sales. However, in the combined update released today, the company reported volume growth for the eighth quarter in a row as well as its first quarterly market share growth since 2011.

Tesco said that UK like-for-like sales grew by 0.7% over the festive period, with food like-for-like sales up 1.3% due to significant market outperformance in fresh food. The company highlighted that lower like-for-like general merchandise sales are likely down to it not repeating the Clubcard ‘Boost’ promotion whilst there were strong performances in clothing and toys, with sales up 4.3% and 8.5% respectively.

Tesco follows Morrison’s and Sainsbury’s who reported sales growth this week so it looks like the retail sector continues to benefit from confidence in UK consumer spending. Nevertheless, we believe that fierce price competition and promotions are likely to remain a squeeze on margins for some time and the revised strategy is going to take time to implement.

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