Investors put supermarket groups in the shopping basket on Friday, as a rare profit upgrade from Marks & Spencer and an intensifying takeover battle for Morrisons boosted shares across the sector.
The rally came as strong sales of food prompted M&S, led by Steve Rowe, to upgrade its profit forecast. The retailer said it was on track to record full year earnings of up to £350 million.
In an unexpected trading update, M&S said it had witnessed an “encouraging performance” since the start of the year, when tight restrictions linked to the pandemic triggered a collapse in sales.
M&S, whose shares rocketed 11% higher to 158.7p, said it was benefiting from “pent up consumer demand” and had enjoyed a particular boost from its food range, where sales jumped 10.8% in the 19 weeks to August 14 compared with last year. They were up 9.6% on 2019/20.
Sales from its clothing and home division during the period leaped 92.2% on last year.
Assuming no further Covid-related restrictions on trading, M&S said it expected adjusted profit before tax for the year to be “above the upper end of previous guidance of £300-350 million”.
Analysts at Shore Capital said it was the first unexpected profit upgrade from the group this century.
Shares in Morrisons, led by David Potts, also jumped over 4% as a £7 billion takeover battle for the grocer between two US private equity firms intensified.
The 11.8p rise to 291p came as US private equity bidder Clayton, Dubilier & Rice last night got support from Morrisons’ board for a 285p per offer.
That was ahead of a most recent 272p per share deal from a Fortress-led consortium. The suitor is “considering its options”.
Shares in other chains including Sainsbury and Tesco were also up.
New ONS data shows UK retail sales volumes dipped 2.5% in July compared with June, but were up 5.8% on February. The lower month-on-month figure was in part linked to a fading of the boost delivered by the Euro 2020 football tournament.
The good news from M&S was tempered by a cautious note on future trading: “There remains substantial uncertainty as to the continued strength of consumer demand, as well as disruption in both supply chains and consequent pressures on costs and margin.”