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April 17, 2012

Marks & Spencer trading update: what the analysts say

After Marks & Spencer today (17 April) posted a surprise decline in fourth-quarter sales, the industry's reaction to the results was mostly positive - despite the retailer admitting to running out of stock in some of its best selling women's wear lines. Here is a flavour of what leading retail analysts had to say about M&S's performance.

After Marks & Spencer today (17 April) posted a surprise decline in fourth-quarter sales, the industry’s reaction to the results was mostly positive – despite the retailer admitting to running out of stock in some of its best selling women’s wear lines. Here is a flavour of what leading retail analysts had to say about M&S’s performance.

Sam Hart, analyst, Charles Stanley Research“M&S’ Q4 trading update ahead of full year results on 22 May was mixed. Sales trends in UK general merchandise were slightly weaker than forecast, although UK food traded broadly in line with expectations. Encouragingly, however, the full-year profit outcome is anticipated to be in line with market expectations. Outlook comments and for 2012/13 were cautiously optimistic. Our recommendation stays at Hold.”

“We expect trading conditions in UK general retail to remain tough over the medium term, given ongoing pressures on the consumer and the intense competitive environment. The more affluent and older than average socio-demographics of the M&S customer base, however, means we expect demand to be relatively resilient Significant self-help opportunities also exist, particularly in strengthening the on-line offer and more fully exploiting the M&S brand internationally.”

Neil Saunders, managing director of Conlumino “In clothing M&S serves a wide range of customers and in our view the offer needs to be executed with greater clarity and focus both to make it easier to shop and more enticing to consumers; this is especially true in women’s wear. M&S has developed some credible sub-brands but now needs to leverage these to a greater extent. To M&S’s credit its new pilot stores address this point and it is encouraging that the concept is to be rolled out further.

“Overall, M&S remains a solid and well run business. These results may not be spectacular but neither are they terrible and where there are weaknesses, M&S has plans in place to deal with them.”

Matthew McEachran, retail sector analyst, Singer Capital Markets“Although there is a sales shortfall in Q4 this is mainly due to availability issues in women’s wear (fixable) and the withdrawal from technology. Cost savings more than offset the sales miss and guidance for FY13 is better than we had factored in. With pilot stores performing well and now costing less to refit, we are comfortable with our buy recommendation and have moved our target price to 415p after the sector re-rating.”

Bethany Hocking, analyst, Investec“On general merchandise, performance was mixed – women’s wear was weak and worryingly “we were short of stock in a number of best-selling lines.”

“More importantly, we have the first guidance for FY13E. 1). Gross margin up 0-25bps – this is in line with us at up c.10bps. 2). UK opex up 3-5% – this is significantly worse than our +1.2% forecast. While we expect the likely outcome to be towards the bottom of this range, given Alan Stewart’s cost cutting history, we are nonetheless disappointed by this guidance.

“The only good news is the downgraded capex guidance, from c.GBP1bn to GBP825m, as the company manages to do the same for less. Overall, however, this is a disappointing statement, and we place our forecasts, target price and rating under review.”

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