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Marks and Spencer shares rise 2 5 despite ninth consecutive quarter sales decline

Article By: ,  Financial Analyst
November 5, 2013 9:15 AM

Marks and Spencer shares opened higher by 2.5% despite the retail firm reporting yet another quarterly sales decline.

M&S said that first-half profits fell 9% to £261.6mn whilst general merchandise sales fell 1.3% for its fiscal second quarter. However, the decline in merchandise sales was in fact slightly better than the market had expected and this helped to boost near term sentiment for the UK high street retailer. Consensus forecasts were for a sales decline of between 0.4% and 2.5% and so the 1.3% slightly beats those estimates. First-half profits also fell broadly in line with estimates.

Perhaps the most important element to consider is the fact that its sales decline slowed. In the previous quarter, sales fell 1.6% and so whilst this is the ninth consecutive quarter of declining sales, this is one element that is slightly more pleasing and helps to strengthen the retailer’s turnaround drive.

Like-for-like second quarter food sales grew by 3.2% and it is here where sales must not be understated. Food sales contributes to over half of M&S’ total sales and the 3.2% rise was at the top end of market forecasts, helping to also calm any nerves about the non-food higher end sales decline.

M&S shares maintain their upward trend but beware 500p resistance
M&S shares have enjoyed a hugely positive year, gaining 41% since the start of January and shares have not looked back, having broken through resistance levels of 420p in May this year. Most investors who bought into Marks and Spencer’s share price have done so on the belief that Marc Bolland can turn around the flagging UK retailer and so the key for sustaining upward share price momentum is evidence that the turnaround plans are working. Today’s earnings announcement does exactly that. M&S are not wholly outperforming the market but their numbers are justification for maintaining an interest.

Shares have struggled over the past month to close above the psychologically important 500p level and so this now needs to be watched by investors. A minor correction from this level is nothing to fear for the longer term sustainability of upward price momentum. However a move below the 420p level would raise concerns of a bearish change in trend.

Source of chart: Thomson Reuters.

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