1Q18 Update

M&S group sales were up 2.7% year over year in the first quarter. UK sales were up 2.6% in total, boosted by openings of Simply Food stores. UK comps were down 0.5% in total.

• UK Clothing and Home comps were down 1.2%, a significant improvement on the 5.9% drop in 4Q17. Total Clothing and Home sales were down 0.5% in 1Q18.
• UK Food comps were down 0.1%, an improvement from a fall of 2.1% in 4Q17, and helped by the later Easter this year. Total Food sales were up 4.5% in 1Q18.
• International sales were up 3.8% as reported, but were down 4.0% at constant exchange rates, as M&S continues to exit some overseas markets.

CEO Steve Rowe said that performance was in line with the company’s expectations and that it continued to grow full-price sales in Clothing and Home. This segment saw reduced discounting and no clearance sale in 1Q18.

Outlook

Company guidance for full-year 2018 remains unchanged:

• UK Food: Gross margin flat to (50) basis points, with pressures from currency effects expected in 1H18. The company noted, however, that most of its Food sourcing is in British pounds. A 7% increase in space, with 90 new Simply Food stores in FY18.
• UK Clothing and Home: A gross margin change of 25 bps to (25) bps, with reduced discounting offsetting some currency effects. A 1%–2% decline in space.

The company expects UK operating costs to rise by between 2.5% and 3.5%, and capex of £400 million in FY18. Analysts expect M&S to grow revenues by 1.1% in FY18, but for EBIT to fall by 4.7%. Consensus is for GAAP EPS of 24.75 pence in FY18 versus 7.2 pence in FY17.