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New back to basics plan

M&S shifts back to family-aged customers as sales fall

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Holly Willoughby is the new face of M&S


Marks & Spencer is make a shift back towards older, family-based customers as it tackles another slip in sales across the business.

Group profit rose 2% in the half year to the end of September but Clothing & Home revenue decreased 2.7% (like for like down 1.1%) as CEO Steve Rowe said the pace of change would accelerate. This follows the closure of 21 full-line stores and three outlets.

The company will focus more on “must-have” items and “shift back towards family aged customers seeking style, quality and value”.

Food sales also faltered wth revenue falling 0.2% (like-for-like revenue down 2.9%). M&S opened 22 food stores in the period, the benefit from which was partly offset by full-line closures.

The company acknowledges that its estate is older than those of its competitors with numerous legacy issues which urgently need to be addressed.

It is on track to shut more than 100 full-line stores and is in the early stages of planning the redevelopment of some of its older sites in city centres.

The company it expects rent inflation to diminish substantially as “the new reality dawns on landlords and centre owners”. Combined rent and rates inflation on continuing stores in the first half was c.1%. 

It said it is making good progress towards generating cost savings of at least £350m by 2020/21 to create a leaner, more efficient base for the business.

Financial headlines

Profit before tax & adjusting items up 2.0% as a result of the phasing of costs with full year cost guidance unchanged

Clothing & Home revenue down 2.7% impacted by store closures, with like-for-like sales down 1.1%. Online Clothing sales growth ahead of market. Gross margin down 20bps as a result of sale timing

Food revenue down 0.2% with like-for-like revenue down 2.9% reflecting tough trading and our actions to restore trusted value, including fewer promotions and price investment, and Easter timing. Gross margin down 25bps as a result

Net debt reduced to £1.78bn as a result of tight capital expenditure control and slightly lower working capital year-on-year

Analyst reaction

Tom Stevenson, investment director from Fidelity Personal Investing’s share dealing service,said: “Reading through M&S’s half year results is like taking a cold shower. The company is ruthlessly honest about the massive challenge it faces. It is re-inventing itself on no less than nine different fronts, acknowledging that it has a mountain to climb in both clothing and food, that its management has been weak, its website clunky and its stores old-fashioned. 

“The half-year figures were as expected. Sales are still declining, in the context of which flat profits is not a bad result. The outlook remains unchanged, so shareholders can look forward to a full year of modestly lower underlying profits with the expectation of another difficult 12 months to come after that. The good news is that the interim dividend was maintained. 

“That remains the main reason to own Marks & Spencer shares. A yield of more than 6%, reasonably well-covered by expected earnings and so safer than most dividend income streams at that level, is attractive in a low-interest-rate environment. The income story buys M&S time to navigate its ambitious recovery plan.

“Chairman Archie Norman has a formidable reputation to defend. He will go down fighting. So, M&S is a classic contrarian investment story. The shares are no higher than they were 25 years ago. But investors will have to decide whether M&S is a value opportunity or a value trap.”

John Moore, Senior Investment Manager at Brewin Dolphin, said: “Marks & Spencer’s sales continue to suffer – group revenue is down 3.1% – reflecting the difficult retail environment and mistakes that the company has made in the past in terms of its offering and retail positioning. 

“Underneath the headline sales figures there was an encouraging financial performance, with free cashflow up and debt levels down – this will provide headroom for the business to invest in much-needed changes to its offering, format, and delivery. After all, the company has yet to put in place a food delivery strategy which most customers now expect. 

“However, Marks & Spencer’s fortunes will depend more heavily on its ability to change and innovate in these kinds of areas than has been the case in the past and that is a risk for investors.”


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