Friday, 21 July, 2017

M&S optimistic over turnaround plan despite decline in sales

Marks & Spencer Christmas Sales Expected To Be Disappointing Source Getty
Heather Davidson | 12 July, 2017, 00:42

Marks & Spencer is in the midst of a turnaround plan to maximise profitability by strengthening its successful food business with new locations, and remedying continually weak sales across its clothing division.

Perhaps more worrying is that analysts are starting to question whether M&S is falling behind its peers, particularly in food sales, which fell 0.1% on a like-for-like basis, below rivals such as Sainsbury and Tesco. "Trading on a FY2018F PER of 11.5x and an EV/EBITDA multiple of 5.6x, with a dividend yield of 5.7% (1.5x covered by EPS and assuming an unchanged pay-out year-on-year), we reiterate our HOLD stance".

He also announced M&S would start its summer sale today, a week later than previous year and that terminal stock for the season was "significantly" down. Food revenues grew 4.5 percent on a reported basis, but fell 0.1 percent on like-for-like basis. Fellow clothing retailers Next plc (LON:NXT) and Debenhams plc (LON:DEB) have both warned of market volatility as consumers feel the pinch of rising inflation and week wage growth.

There were some pockets of good news, in the food department M&S is gaining market share overall, and full price clothing sales were ahead of the wider United Kingdom market. If this continues to come out on the weak side then we could see retailers continue to struggle.

Mr Rowe said he hopes clothing and home sales will begin to turn positive towards the end of the year.

In May, the company announced it was recruiting Jill McDonald, the former boss of bicycle and auto parts retailer Halfords, to lead the apparel and homewares division. "In our Food business, we delivered strong growth from new Simply Food openings, and are prioritizing better ranging and stronger promotions". The deal returned with more options, including two different cuts of steaks and a beef roasting joint.

In the trading statement, Rowe maintained first-quarter trading was "in line" with his expectations and that "we are on track" with delivery of the restructuring plan unveiled last year and left full year guidance unchanged. "The unexpected drop in sales for their sturdy food division could also be one of the catalysts that has got traders spooked".

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