marks and spencer m&s

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For the first time in two years food sales at Marks & Spencer (MKS) are up, and more so than expected, but group revenues and profits were dragged down by a poor first-half performance from the clothing and home division.

Total food revenues rose 1.2% to £2.85bn in the six months to 28 September 2019, with like-for-like sales up 0.9%.

An investment in lowering prices on its best-selling lines resulted in a marked improvement in the second quarter of the period as volumes jumped by 3.3% and like-for-like sales rose by 1.4%, compared with just 0.4% in the first quarter. However, M&S said that lowering prices had squeezed gross profit margins slightly in the period, falling by 20 basis points to 31%. The retailer has made more than 400 price reductions in excess of 10% in the past year to become more competitive in the market, with the cost largely offset by lower promotions and cost cutting.

The performance of food wasn’t enough to counter the rot in the ailing clothing and home business, where revenues sank 7.8% in the half to £1.57bn, with like-for-like sales down 5.5%, as the group battled availability challenges and slow progress in the turnaround plan.

Group revenues in the half fell back 2.2% to £4.86bn, with like-for-like sales down 1.5% and profits sinking by 17.1% to £176.5m.

CEO Steve Rowe remained upbeat and said the transformation plan was now running at a pace and scale “not seen before at Marks & Spencer”.

“For the first time we are beginning to see the potential from the far-reaching changes we are making,” he added.

“The food business is outperforming the market. Our deal to create a joint venture with Ocado is complete and plans to transition to the M&S range are on track.

“In clothing and home we are making up for lost time. We are still in the early stages, but we are clear on the issues we need to fix and, after a challenging first half, we are seeing a positive response to this season’s contemporary styling and better value product.”

The improvement in the food business saw the retailer improve its full-year sales guidance for the division. Previously, M&S said it expected sales would be 1% for the year, but it upgraded the forecast to be flat.

Shares in M&S jumped 6% to 193.3p as the Stock Exchange opened this morning.

Sales in food were held back in the first half by the closure of 17 full-line stores and one food shop during the period as M&S continues efforts to reshape the group. Fewer closures are expected in the second half.

M&S added that its share of losses in Ocado for the period amounted to £500,000 following the acquisition of half of the online retailer’s business in August. It said results were in line with expectations and reflected a seasonal low point in the trading calendar.

Melanie Smith, former strategy director of M&S, has been appointed CEO of Ocado Retail, supported by Lawrence Hene as deputy CEO for a transitional period before he moves back into a senior role within the Ocado group.

Morning update

Irish-based consumer foods group Kerry Group (KYGA) has reaffirmed its full-year guidance after reporting double-digit revenues growth in the first nine months of the year.

For the nine months to 30 September 2019, revenues jumped 10%, reflecting volume growth of 3.1%, acquisition contribution and favourable currency impact.

Margins rose by 20 basis points, driven by enhanced product mix and operating leverage efficiencies offsetting investment for growth and Brexit risks.

The company said “major global trends” including clean label, authentic taste and plant-based, continued to “generate innovation opportunities”.

Kerry’s Taste & Nutrition division saw volumes growth of 3.9% mainly driven by meat and snacks sales.

Geographically, volumes were 2.6% higher in the Americas region, 2.3% in Europe and rose 9.9% in the APMEA region (Asia Pacific, Middle East and Africa).

However, volumes in the Consumer Foods unit decreased 0.7% reflecting a “subdued marketplace” and the impact of the loss of a ready meals contract.

Kerry’s Richmond chilled sausage delivered “good growth” while the spreads category “remained challenged”.

Looking ahead, Kerry reaffirmed its guidance of adjusted earnings per share growth between 7% and 9% on a constant currency basis.

CEO Edmond Scanlon said: “We are pleased with our performance to date in the period, with volume growth ahead of our markets combined with margin expansion.

“We enjoyed strong growth in developing markets, as we further deploy our technology and continue our strategic footprint expansion. We continued to make strategic acquisitions, and good progress has been made on the integration of acquisitions completed over the last 12 months which are performing well.”

Dutch supermarket operator Ahold Delhaize (AD) reported a 5.8% revenues increase in the third quarter driven by a stong performance of its US chains Hannaford and Food Lion.

Third quarter net sales came in at €16,68bn campared to €15.78bn a year ago. So far since the beginning of the year, the company generated €48.88bn of revenues, 5.7% higher year-on-year.

Ahold Delhaize US brands delivered a “strong perfromance” with revenues up 2% to €10.2bn, particulary at Food Lion and Hannaford. US comparable sales, excluding fuel, were up 1.8% in the quarter while online sales in the US grew over 26%. 

In the Netherlands, the group delivered a “solid” performance with 3% comparable sales growth. Net sales rose 4.4% to €3.62bn. Online sales were up 31% in the period. 

In Belgium net sales rose 2.1% with the company gaining market share, while in Central and Southeastern Europe the quarterly performance proved strong, revenues rose 6.1%, with improvements in Greece and Serbia.

Looking ahead, the company reiterated its guidance of underlying earnings per share to be in the low single digits and margin to be slightly lower than 2018. 

Ahold Delhaize shares were trading 2% higher at €23.56 in Amsterdam this morning.

The FTSE 100 opened 0.1% lower at 7,380.15pts.

Marks and Spencer shares were trading 5.3% higher at 192.05p, while Kerry Group shares fell 0.4% to €110.20.

Other risers included Imperial Brands (IMB) up 1.2% at 1,770.40p, Stock Spirits Group (STCK) up 1.7% at 204.50p and British American Tobacco (BATS) up 0.6% at 2,809p.

Among the fallers, Glanbia (GLB) was down 0.9% to 10.48p, Diageo (DGE) down 0.5% to 3,087.50p and Coca Cola HBC (CCH) down 0.4% to 2,327p. 

Yesterday in the City 

The FTSE 100 closed 0.3% higher at 7,388.08pts.

Closing in the green, Associated British Foods (ABF) closed 5.6% higher at 2,374p after reporting better-than-expected annual results. Imperial Brands (IMB) closed up 0.7% at 1,750.20p

Ocado (OCDO) closed 0.7% higher at 1,360p, Greggs (GRG) rose 1.7% to 1,784p and Greencore ended the day 1.1% higher at 235.80p.

Fallers included Diageo (DGE) closing down 0.9% at 3,101p, Tesco (TSCO) down 0.5% to 238.40p and Morrisons (MRW) down 0.7% to 198.65p.