M&S trading update: What the analysts say
Analysts have yet to be convinced that Marks & Spencer's clothing business has turned a corner
Marks & Spencer would seem to have turned a corner after recording a 1.3% increase in fourth-quarter clothing sales. But analysts believe the retailer's story remains the same - and that much more radical reforms are still needed.
Conlumino analyst Neil Saunders
"With today's results M&S is, at long last, showing some green shoots of recovery. Although the numbers are not spectacular, and they are set against some soft comparatives, they have at least brought to an end a long run period of decline in the clothing business. This will bring both relief and a much needed breathing space for the top team at M&S and will, hopefully give them the confidence to move forward with more radical reforms of the fashion business which, in our view, are still needed."
"However, just as one swallow a summer does not make, one good set of results a sustainable recovery does not indicate. Indeed, it is worth noting that although positive, M&S's latest numbers are not high enough for it to have grown its clothing share; by our calculations M&S has underperformed the market during this period and, as such, has continued to cede share."
Shore Capital analyst Clive Black
"M&S has revealed fourth-quarter 2013/14 trading that is frankly quite mellow albeit no great surprise to the market."
"We like a lot of what is and has been done by management at M&S with respect to food, international, its internal infrastructure and potential online capabilities. Furthermore, the stock rating is not overly demanding.
"However, the heart beat of the retailer is apparel and ladieswear at that and M&S needs to deliver stronger trade and cut out what tend to be small market downgrades. Despite distinctly dull trade, we do see progress in the proposition, its merchandising and execution and we are encouraged by the company's comments on recent womenswear activity. However, there is clearly a lot more to do for M&S to do stem market share decline in ladieswear in the UK on a sustained basis.
Hargreaves Lansdown Stockbrokers analyst Richard Hunter
"The update has been well received by investors, despite the fact that the story largely remains the same. Strategically, M&S is continuing its push into overseas markets (although the position in China is challenging) whilst also driving further into its online offering, where it remains behind some of its more developed competitors.
"Meanwhile, food remains a strong contributor to profits, and guidance on profit margins has also been nudged higher. By contrast, general merchandising is still under pressure, with some improvement in Clothing somewhat overshadowed by a reduction in gross margins due to promotional activity."
Bernstein Research analyst Anthony Sleeman
"We see nothing in these results to fundamentally change our view on M&S. While general merchandise like-for-like sales were better than we had expected, the quality of the performance was worse than our already below previous guidance expectations, given new guidance for circa 100 basis points contraction for GM in the second half.
"While M&S have hinted at better performance in womenswear, it is difficult to see how much of this has been driven by improved sentiment and how much by promotion. Our conversations with M&S customers, conducted in a series of focus groups, suggested they had not fundamentally changed their opinion of the M&S offer, and the gross margin cuts are in keeping with customer feedback that many, particularly the core 55+ demographic, wait for promotion before buying at M&S."
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