ASBFY Associated British Foods Plc (PK)

LONDON—British retailer Marks & Spencer Group PLC on Thursday reported weak first-quarter sales as the company continued to be dragged down by poor performance in its clothing and home business.

Shares fell 1% in morning trading in London as M&S's 4.3% decline in U.K. like-for-like sales for the first quarter of fiscal 2017 missed analyst estimates, even though the company said its full-year guidance on group sales would be similar to fiscal 2016.

Like-for-like food sales in the quarter ended July 2 fell 0.9%. Sales in the clothing and home arm—which has turned in a weak performance for several consecutive quarters—tumbled 8.9%, after M&S scaled back on price promotions in a bid to move products toward lower, more consistent pricing.

"We knew our actions would reduce total sales but we are seeing some encouraging early signs," said Chief Executive Steve Rowe on a call with analysts.

One of the best-known names on the U.K. high street, M&S said consumer confidence had "weakened in the run up to the EU referendum" but added that "it is too early to quantify the implications of Brexit."

Mr. Rowe said M&S saw consumer confidence soften in November following terror attacks in Europe, concerns about the economy and the U.K.'s referendum on the European Union, and that the company had noticed a further softening in March. But he added that M&S's change in strategy around promotions made it "very difficult to assess" the impact of the decision to leave the EU.

"On the day of the vote itself our footfall was down on that day as customers went to vote and that's the only thing I can say about it," said Mr. Rowe, who took the reins of M&S in April and has since set in place the strategy of reducing promotions while cutting everyday prices.

Liberum analyst Tom Gadsby described M&S's performance as "very poor" and scaled back his earnings forecasts, predicting that sales would take a further hit. "We believe that in the light of the Brexit vote consumer demand will be more severely impacted," he said.

M&S said it has currency hedges in place for the majority of the current fiscal year and the first half of the next fiscal year, meaning any impact on sourcing costs from the weak pound won't start to show for a while.

International sales, which represent around 10% of the group total, rose 6.1% or 0.7% at constant currency.

By contrast, on Thursday shares in Associated British Foods PLC jumped 9.7% to 2800 pence after the company, which owns budget clothing chain Primark, offered a brighter outlook for the year and logged higher sales for the 40 weeks ended June 18, saying revenue was up 1% or 3% at constant currency.

Primark reported 7% sales growth at constant currency in the first 40 weeks of its financial year, driven by increased selling space and high sales per square foot. That helped offset weak like-for-like sales in the third quarter which the company blamed on "unpredictable weather."

Overall, the group's third-quarter growth was 4% at constant currency and 7% at actual exchange rates.

ABF—which supplies food ingredients including sugar and enzymes and also owns food brands such as Ryvita crisp bread and Twinings tea—indicated it would benefit from Britain's vote to leave the EU in the short-term.

ABF in April warned of a "marginal decline" in adjusted earnings per share for the full year but on Thursday said the weak pound would translate into higher revenue from its international operations and hence it no longer expects earnings to decline.

For the next fiscal year, ABF said it would see both positive and negative impacts from the falling pound. Primark will see U.K. clothing margins squeezed by higher costs—since much of its costs are dollar-denominated—but margins in ABF's British sugar business will benefit from lower costs. Separately ABF said group profits earned outside the U. K.—roughly 50% of the total—will be helped by the weak pound.

It said the underlying operating performance of the group during the third quarter was ahead of its expectations, boosted by an improvement in the sugar business.

â "Rory Gallivan and Anais Voski contributed to this article

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and Ian Walker at ian.walker@wsj.com

(END) Dow Jones Newswires

July 07, 2016 08:25 ET (12:25 GMT)

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