Marks and Spencer Group PLC share price up, reports gains in revenue and increases margin forecast

Marks and Spencer Group PLC reported a revenue increase for the first half of the year as strong performance in its food business offset a revenue decline in clothing.

M&S reported a 0.5% year-to-year rise in group revenue from £4.8 billion to £4.9 billion for the first half of this year, including a 1% increase in sales within the U.K. to £4.4 billion.

Britains biggest clothing retailer increased its forecast for full-year gross margin to be in the range of 1.5% and 2%, up from the previous projection of 1%. The company also lowered its operating costs outlook, from 4% to 3.5%.

General merchandise sales fell 3.6% in the second business quarter, including a 3% decrease in clothing. This is the 13th consecutive quarter of decline in clothing sales from stores open for more than a year. Richard Hyman, an independent analyst, has estimated that due to the recent warm weather, clothing retailers have lost around £700 million in sales.

However, the company stated a 3% increase in food revenue for the second fiscal quarter, or a total 3.6% increase for the first half of the year.

“Clearly trading conditions remain difficult in clothing, but these results are probably the first for a long time which will not result in forecast downgrades” said Tony Shiret, an analyst at Espirito Santo.

M&S increased its interim dividend from 3.2 pence a share to 6.4 pence as a reflection of better free cash flow and confidence in the profit outlook. But analysts still wonder whether CEO Marc Bolland could deliver a long-awaited turnaround.

“I will not use the same words, but I would say that these signs are all encouraging, and they were planned for, because we clearly had a three-year investment period” he commented.

Mr. Bolland, who left the supermarket chain Morrisons in 2010 and took over M&S, has spent over £2.3 billion with the aim to renovate the companys stores, products, marketing and other aspects.

Sales from the companys website, which experienced glitches during the quarter, fell 4.6% in the second fiscal quarter, but were still better than the first quarters decrease of 8.1%. In February the website was relaunched, the value of the move was around £150 million.

Marks and Spencer Group PLC share gained 0.20% on Tuesday and closed at GBX 404.70 in London. On Wednesday the stock gained 9.22% to trade at GBX 442.00 at 13:41 GMT, marking one-year decrease of 13.22%. The company is valued at GBP 6.62 billion. According to The Financial Times, the 21 analysts offering 12-month price targets for Marks and Spencer Group PLC have a median target of GBX 465.00, with a high estimate of GBX 530.00 and a low estimate of GBX 340.00. The median estimate represents a 14.90% increase from the previous close of GBX 404.70.