Marks amp Spencer shares hit seven year high after non food breakthrough

Updated at 1102 BST

‘Not Just Food’

Marks & Spencer shelved it’s ‘Not Just Food’ slogan years ago, but unfortunately, in terms of sales growth, it’s been true for years.

Till today that is.

Marks & Spencer said in its fourth-quarter statement on Thursday it had finally broken an uninterrupted run of like-for-like sales declines in its non-food business.

The outcome is M&S’s best performance in that segment for nearly four years.

It looks like a material part of the recovery can be put down to the recent completion of M&S’s protracted efforts to fix online distribution problems.

The market is undoubtedly applauding the demonstrable turnaround of the online business this morning.

M&S.com sales bounced with a rise of 13.8%.

General Merch. finally joins Food’s advance

Marks & Spencer said General Merchandise like-for-like sales—meaning sales at stores open longer than year—rose 0.7% compared to its fourth quarter a year ago.

General Merchandise is M&S’s second-largest segment and includes clothing, footwear and home wares.

It’s the first time in 15 quarters M&S has not posted a fall in non-food like-for-like sales.

The result also beat the average forecast of a group of analysts polled by Marks & Spencer which pointed to a fall of 1.2% in non-food, after a decline of 5.8% in the third quarter.

In keeping with M&S’s strategy of not joining its retail rivals’ chase of ever lower prices at the expense of margins, Britain’s fifth-largest supermarket said it made good progress in general merchandise gross margin.

That enabled it to maintain guidance that the final 2014 tally would show a rise of  between 150 and 200 basis points.

Further reassurance for the market this morning comes from the like-for-like sales in M&S’s food business, which at 0.7%, is the 22nd-straight quarterly rise in that segment, maintaining M&S’s lead over all other large UK grocers, whose food sales have continued to collapse for more than a year.

Full-year gross margin guidance for food was maintained at a rise of 10 to 30 basis points.

Bolland buttressed 

The breakthrough in non-food sales, together with online finally kicking into gear will provide much-needed underpinning for M&S’s CEO Marc Bolland.

M&S CEO Marc Bolland speaking at the company’s 2013 Annual General Meeting

Today’s statement ought to silence critics of his broad strategy, for now at least.

Their main contention has been the persistent underperformance of Britain’s largest clothing retailer in that business, despite the former Morrisons CEO’s evident achievements in reversing decades of under-investment, redesigning products, stores, logistics and M&S online, since his appointment in 2010.

This morning, it’s clear some scepticism over Bolland remains.

The next front may well be about M&S’s gross margins, which have put in respectable growth.

That came amid near-unprecedented promotional activity by big UK retailers at the end of last year.

M&S was not entirely aloof from that frenzy.

Still, so long as its gross margin continues to widen at least at the rate of current guidance, the choice of whether to stay M&S’s CEO is likely to remain largely Bolland’s.

Legs still look excellent after strong run

All in, there was solid justification for Marks & Spencer’s stock to put in a strong showing in Thursday’s session, reaching a 7-year high early on.

In an article previewing this morning’s sales figures last night, I sketched out some important levels to watch in the underlying stock.

These remain valid.

The stock has overcome and is holding above resistance that coincides with an important retracement mark drawn off its all-time high of 759p in July 2007, to a low of 191p in September 2008.

With the rise over the last 6 months now approaching 50%, some investors could be tempted to realise profits with little further ado.

But looking at the daily chart right now, upward momentum looks as good as unassailable within this time frame, implying a continuation of the run at least for the immediate-to-medium term.

The slow stochastic indicator whose moving average lines are in purple (slow) and light blue (fast) has this morning provided an almost ideal reading, with the slower line crossing the faster as both invert upwards.

The Moving Average Convergence Divergence system (orange, pale blue) and Percentage Oscillator (white) provide moderate corroboration.

Shorter-term traders of City Index’s Marks & Spencer Daily Funded Trade have pushed the title to similar levels as the underlying stock, amid very strong momentum.

Both attached trading systems, the MACD Fast Line Zero Cross and Slow Stochastic Oscillator Reversal Cross, issued buy signals within the same closing half hour of the previous session. (Please see below).

Inevitably, after this morning’s surge, the M&S DFT is starting to show signs of being short-term overbought.

Whilst this may lead to the title, and the underlying stock, easing a little by the end of Thursday’s session, I would not expect current underlying bullishness to be significantly negated.