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M&S broker verdict? Could do better.

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Written by:
08/07/2014
Brokers give their views on Marks & Spencer's first quarter results.

Sheridan Admans, investment research manager at The Share Centre

“Marks & Spencer saw its shares rise in early morning trading as the market took stock that its Q1 results were not as bad as feared. Teething problems due to the revamp of its e-commerce sales channel saw online sales fall 8.1% and general merchandise remained troubled.

“Despite headwinds, Marks & Spencer managed headline group sales, excluding VAT on a constant currency basis of 2.3%, supported by good food and international sales numbers. Marks & Spencer provided investors with some comfort by keeping full year guidance unchanged.

“We continue to believe that investors should hang on the coat tails of recovery at Marks & Spencer, as it tackles its problems in womenswear and general merchandise. Improving consumer confidence and recovering UK economy, led by domestic demand, should be supportive of results ahead.”

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers

“Against a backdrop of low expectation, M&S appears to have offered some hope. An increased focus on profit margin generates potential longer term optimism, with general merchandise sales no worse than forecast. Key womenswear sales have grown, while a recent improvement in online sales, despite previously flagged difficulties, provides some relief.

On the downside, General Merchandise sales are still in retreat, whilst like-for-like food sales are marginally below forecast. Furthermore, the group’s international sales are not without difficultly given ongoing challenges in Ireland and shipment timing issues this time around to franchise partners in the Middle East.

For now, M&S remains a work in progress. The group’s offering continues to be honed, food sales are expanding, bolstered by the roll-out of new Simply Food stores, whilst the strength of the group’s brand name and the still attractive dividend yield cannot be forgotten. In all, the current chief executive and former head of Morrison’s is still being given the benefit of the doubt, with analyst opinion still pointing towards a strong hold.”

Joshua Raymond, City Index

Marks and Spencer maintained its full year guidance, although it recognises some improvement in consumer confidence even though market conditions remain challenging.

The result means that the retailer has now experienced a further decline in sales performance following a 0.6% drop in the previous quarter. The 1.5% decline does, however, come in slightly better than the general market consensus for a drop of around 1.7% in merchandise sales.

This is now the 12th straight quarterly sales decline in non-food items including fashion and home.

Like-for-like sales of clothing fell 0.6% against expectations of a 1.5% decline. The retailer said that they were continuing to see improvement in the clothing division, with footfall and sales returning thanks to the improvements it has made in quality and style.

One of the city’s concerns has been over margin. As the firm reacts to counter falling sales, will its increase in promotional activity impact overall profit margins? Marks and Spencer’s claims that this has been a key focus of their strategy, with has caused them to be less promotional in both online and store sales to help protect margins.

General merchandise sales were impacted by the ‘settling in’ of a new .com website, with online sales falling 8.1%. The business is now focused on optimising the website commercially.

It remains to be seen whether the website impact is becoming a fundamental concern on sales or whether this is really just teething issues with its roll out, which the firm maintains will last approximately six months (having been rolled out in February). The fact that online sales fell 8.1% during the teething issues remains a concern.

There remain significant concerns over Marc Bolland’s leadership, which has suffered similar resignations of its top executives that fellow suffering retailer Tesco has seen of late. The improvement in market confidence is encouraging and this result is nowhere near as bad as the market had feared. Nevertheless, it’s equally nothing to cheer either.

 

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