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M&S lifts profit outlook as food range drives sales

M&S food store
Many of the customers Marks and Spencer won over Christmas have continued to buy food there since, the store say. (Photo by Chesnot/Getty Images) (Chesnot via Getty Images)

Marks and Spencer (MKS.L) saw a surge in food sales in the last quarter of the year, getting a boost from Christmas shopping, as it lifted its profit outlook.

Sales in its popular food division increased 12.4%.

“Encouragingly, the larger basket sizes we saw in the first half continued through the Christmas period as customers used M&S for more of their everyday shopping,” the food and fashion retailer said in a statement.

“As a result, M&S was the fastest growing major store-based food retailer in the period.”

The business generated its highest ever Christmas sales with December growth in line with the performance for the quarter.

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Group sales, excluding currency movements, were £3.3bn ($4.5bn) and 8.5% ahead of pre-pandemic levels. Management now expects full-year underlying pre-tax profits of at least £500m ($687m), assuming no further COVID-related restrictions are imposed.

However, shares in the company plunged roughly 6% on Thursday morning.

"Despite the positive performance, M&S is still plagued by structural challenges, especially in its clothing & home division," said Ross Hindle, analyst at Third Bridge.

"To complete its resurgence M&S needs to slim down its bloated clothing ranges, trim its high stock-keeping unit count, and resolve its non-premium store locations," .

M&S stock was down on Thursday morning. Chart: Yahoo Finance UK
M&S stock was down on Thursday morning. Chart: Yahoo Finance UK

M&S food is also now available online on Ocado, though figures for that are not included in these numbers, it said its products were performing well on Ocado.com, representing around 30% of the food in people's baskets in December.

"Trading over the Christmas period has been strong, demonstrating the continued improvements we've made to product and value,” said CEO Steve Rowe.

Food sales maintained their momentum, outperforming the market over both 12 and 24 months, he said, while clothing and home delivered growth for the second successive quarter, supported by robust online and full price sales growth.

"Any excitement over M&S’s strong third quarter sales is somewhat tempered by management’s minimal profit guidance increase," said Laura Hoy, equity analyst at Hargreaves Lansdown.

"There’s a chance that this kind of sales growth won’t be sustained in the coming year – particularly if inflation makes consumers wary. We think M&S is well-placed at the higher end of the spectrum, but it’s not immune," she said.

"MKS stock has climbed markedly higher since the start of the pandemic, and it will take a lot more than a nudge to profits to sustain those expectations.”

Watch: What are SPACs?