Marks and Spencer shares plunge despite strong Christmas trading update

Shares in Marks and Spencer took an eight per cent hit in early trading today as investors reacted to the company's Christmas trading update.

The food and clothing retailer reported this morning that food sales rose by 8.7% in the 13 weeks to December 28, with sales of its new Christmas products up by 14%, as reported by City AM.

This compares to a market average of 2.1% in the final month of the year, according to Kantar. However, sales in clothing, home and beauty were less impressive, increasing by just one per cent, despite the sector recording its "biggest week" over the festive period, said Marks and Spencer.

Analysts at Jeffries attributed the share price drop to profit-taking by investors due to a high price-to-earnings ratio suggesting the stock is overvalued. Richard Hunter, head of markets at interactive investor, described the lack of investor confidence in the stock as "unfortunate" and linked it to the "raft of economic challenges to come".

The FTSE-100 firm warned that the outlook for UK economic growth "remained uncertain", and that the business "faces higher costs from well-documented increases in taxation", but also highlighted "substantial opportunities". "We are focused on what is within our control, as we reshape Marks and Spencer for growth," the company stated.

Chief executive Stuart Machin added that the firm "[wasn’t] complacent – as a growth business it’s our job to break records... there is much within our control."

"The external environment remains challenging, with cost and economic headwinds to navigate, but there is much within our control."

"Transforming Marks and Spencer is a marathon, not a sprint, and we go into 2025 shifting up a gear and raring to go as we accelerate the scale and pace of change," Machin said.

The company has observed a trend where customers are increasingly purchasing daily essentials from their stores, deeming M&S a high-quality, cost-effective alternative to dining out.

As Marks and Spencer continues its transformation initiative, the effects are becoming evident: since 2022, impressive outcomes have been recorded following the launch of its recovery plan post-pandemic.

Zoe Gillespie, investment manager at RBC Brewin Dolphin, commented: "Marks and Spencer had a strong festive period, capping a great year for the business. Food remains, and will likely continue to be, its standout offering – but there have also been positives to take in other divisions as the business undertakes its transformation project."

Up-to-date industry research indicates that Marks and Spencer's market share is on the ascent, achieving a record high as 2024 concluded, and its yearly sales growth ranks amongst the most robust within the UK supermarket sector.