LONDON (Reuters) – A surprise dip in underlying food sales knocked shares in Marks & Spencer (MKS.L) on Tuesday, though the British retailer said its recovery remained on track thanks to a second consecutive quarterly increase in full-price clothing sales.

The 133-year-old store chain is battling to turn round its fortunes after falling out of fashion over the last decade. Its task is being complicated by a squeeze on consumer spending as inflation rises and wage growth falters.

Chief Executive Steve Rowe, a 27-year company veteran who took over in April 2016, said his strategy of reducing prices for entry-level clothing ranges, cutting back on clearance sales and promotions, and improving fit, availability and service was working.

“We have a plan and we remain convinced it is the right one,” he told shareholders at the firm’s annual meeting.

In clothing and homeware, M&S’s full-price sales – a key guide to profitability – rose 7 percent in the 13 weeks to July 1, its fiscal first quarter, reflecting 27 fewer promotions in the quarter versus a year earlier and no clearance sale.

“I’m delighted with where we are (on clothing) … We’re absolutely on track with what we said (last year},” Rowe told reporters. “We’ve gained full price market share, volume market share, (and) market share in stores,” he added.

However, same-store sales in M&S’s upmarket food business fell 0.1 percent, below analysts’ average forecast for a 0.6 percent rise, despite an estimated 0.7 percent boost from the timing of Easter.

“This is the second quarter of food underperformance versus the industry,” said Investec analyst Kate Calvert, who has a “sell” rating on the company’s shares.

“(The M&S share price) valuation is not compelling enough given near-term uncertainty on consumer spending and poor earnings visibility,” she added.

The share price was down 4.5 percent at 324 pence at 1517 GMT.

Unconcerned

Rowe brushed aside the concern over food. “We’re quite happy about it,” he said.

M&S was continuing to win market share, he said, but he acknowledged that the opening of new food stores had affected sales in some nearby outlets, which had weighed on the like-for-like numbers.

He maintained the group’s financial forecast for the full year.

Part of Rowe’s turnaround plan is to switch some UK shop floor space from clothing to food. M&S said in November it would close about 30 UK stores selling clothing, homewares and food and downsize or convert another 45 into food stores over five years. Six stores were identified for closure in April and one has closed so far.

Like-for-like clothing and homeware sales fell 1.2 percent in the quarter, better than the average of analysts’ forecasts of a 1.3 percent fall and a 5.9 percent decline in the previous quarter.

Rowe said the lack of a sale knocked about 2 percent off the like-for-like number, though Easter gave a boost of 0.6 percent.

“I would expect to see us start to move a little bit more towards a positive (like-for-like clothing) number later on in the year,” he said.

Halfords (HFD.L) boss Jill McDonald will join M&S in the autumn to run its clothing business.

Chairman’s Parting Comments

Presiding over his last annual meeting Chairman Robert Swannell fielded criticism from private investors over M&S’s share price, which is little changed from when he started the job in January 2011.

“Sixty percent of our turnover is in food. If you had been invested in any of the other major grocery listed companies you would have done significantly worse than being invested in M&S,” he said. “I share your pain.”

Swannell, who will retire in September and be succeeded by retail veteran Archie Norman, said M&S had undergone “an astonishing transformation” over the last seven years.

“There is practically no part of its basic infrastructure that has not changed,” he said.