An unscheduled trading update (18 Aug) confirming weak clothing sales and containing plans to eliminate up to 7,000 jobs in the next three months sent shares in Marks & Spencer (MKS) lower.

This comes with the business on the cusp of a major test as it gears up for its new supply deal with Ocado (OCDO), which starts in September 2020.

A strong start to the venture would fuel optimism it can catch up with rival online food sellers, although failure would heap further pressure on the already-battered share price.

The retailer’s successful food business helped prop trading up again, although the perennially underperforming clothing and home operations have struggled in the face of headwinds including social distancing and the collapse in demand for office attire and formal wear.

For the 13 weeks to 8 August, embattled Marks & Spencer reported a 13.2% drop in group sales, with a 2.5% rise in food sales offset by a 38.5% drop in clothing and home sales and a 24.6% slump in international sales, though the company insisted trading was actually ahead of the scenario outlined at the year-end in terms of revenue and cash.

Unsurprisingly, clothing and home sales were weak due to store closures, but in the eight weeks since reopening the improvement has been modest with the 47.9% drop in in-store sales partially offset by a 39.2% increase in online revenues.

FOOD, GLORIOUS FOOD

Yet again, the food business proved the saving grace for Steve Rowe-steered Marks & Spencer, with sales building steadily as customers adapted to more in-home eating and online ordering. In-store sales also improved as more locations opened during the quarter.

Shore Capital is ‘encouraged to see the reports of the Ocado Retail switch from Waitrose & Partners to M&S being on-track for the September launch, a shift where momentum and news flow has been heightened this week with messaging around the stronger core offer price proposition. Taking M&S Food online is a demonstrably good news story to us, noting ongoing synergies to emerge.’

Marks & Spencer joined other major retailers in announcing swingeing job cuts, which is terrible news for the affected employees. The retailer is beginning a consultation process to cut around 7,000 jobs across its stores, the central support centre and in regional management.

Most of the job losses are expected to be voluntary and through early retirement, while new roles will be created to support the online business and its new food warehouse.

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