Marks & Spencer H1: what the analysts say
While Marks & Spencer posted an almost 10% decline in pre-tax profit over the first half of its financial year, an uplift in general merchandise sales in the second quarter suggests efforts to improve its clothing offer are beginning to bear fruit. Here is a flavour of what leading retail analysts say about M&S' recent performance.
Conlumino analyst Neil Saunders
"The latest results from M&S are something of a mixed bag. While the overall half year numbers look anaemic, there has been a material uplift in fortunes since the first quarter with even GM moving into positive growth territory on an overall basis (+0.1% for Q2 versus -5.1% for Q1).
"Some of this is attributable to the improved trading conditions on the high street across the second quarter, something that M&S will have benefited from, especially in terms of clothing sales. However, some of the uplift is also down to a greater sense of energy and focus across the business, including a strong marketing push on key fashion trends and the revamping of store environments.
"That said, it remains too early to call whether M&S is back on the path to sustainable growth. Indeed, even with a better Q2 performance, M&S has still underperformed the market in fashion and growth in general merchandise remains elusive on a like-for-like basis. All of this points to the fact that M&S still has plenty of issues to resolve and there is still much work to be done. In essence, the company has moved into gear but has yet to put its foot on the accelerator."
Economist Intelligence Unit chief retail analyst Jon Copestake
"M&S continues to face a mounting challenge in the divergent fortunes of its clothing and food divisions. On the one hand food continues to hit a sweet spot in the market for higher end packaged and prepared items targeting aspirational or convenience needs. However, on the other hand, clothing continues to slide as companies like ASOS undermine the M&S brand with young consumers and companies like Primark continue to thrive on competitive pricing. Given the weak sentiment across Europe it is no surprise international sales provide a highlight. Markets like India and China could provide fillip for M&S clothing going forward."
Charles Stanley analyst Sam Hart
"We expect trading conditions in UK general retail to remain tough over the medium term, with the consumer environment staying subdued and the competitive landscape intense. M&S is likely to be amongst the more resilient retailers, however, given the older demographics of customers and their bias towards more prosperous socio-economic groups. Significant self-help opportunities also exist, particularly in the areas of on-line, International and the supply chain. The shares are up by approximately 25% since mid-July, in part driven by takeover speculation. We attribute a low probability to a takeover in the medium term, given the absence of obvious trade buyers and considerable uncertainty surrounding exit strategy for any private equity buyer."
Bernstein Research analyst Jamie Merriman
"Today's results are encouraging, as they suggest an improvement in underlying trading, and particularly in the general merchandise business. Although it is still early days for the new GM team, we are eager to learn what the new team has planned for buying and whether or not M&S will see an increase in production from Europe and a corresponding increase in the Open-to-Buy and shortening of the supply chain. The food business continues to perform well and in-line with expectations. Finally, the international business has shown signs of improvement, as sales growth, on a constant currency basis, in emerging markets has more than offset weakness in Western Europe."
Investec analyst Bethany Hocking
"Gen Merchandise gross margin and M&S Money surprised positively, but International is disappointing. The outperformance of food and online means M&S is becoming a structurally lower margin model....We will review our forecasts, but don't expect consensus to move. We continue to have concerns on Marks and Spencer and view a successful bid as unlikely. Nevertheless, today's statement is better than feared so the shares may see a small nudge up."
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