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M&S results: Broker reaction

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Written by:
02/04/2015
Results today held hints of a turnaround, what do brokers make of its performance?

Keith Bowman, equity analyst, Hargreaves Lansdown Stockbrokers

“Like-for-like sales have beaten expectations, with a return to growth for clothing sales the clear positive. Furthermore, sales growth has been achieved without sacrificing profit margin, while the group’s food sales continue to retain momentum in what is undoubtedly a challenging environment. Adding to that, prior difficulties for its online operations appear to have been tackled, with much needed improvement in its website performance urgently being addressed.

“On the downside, international sales have yet to convince, hindered this time by macro-economic issues in Russia and the Ukraine, with currency headwinds impacting second half overseas profitability.

“In all, and with investor patience much tested, chief executive Marc Bolland may finally be turning the corner. A much-needed overhaul of merchandise, particularly clothing, now looks to be paying off, while a concentration on costs continues to contribute. On balance, and despite a 30% plus outperformance of the broader FTSE-100 index over the last six months, analyst opinion continues to warm, with the current consensus of a cautious buy potentially being further upgraded.”

Paul Thomas, Retail Remedy

“Last year this venerable brand came perilously close to becoming an also-ran. Modest though it is, M&S’s turnaround shows it’s not ready to be put out to pasture yet.

“For a while its hugely successful food range ceased to be a trump card – and began to look like the only card Marc Bolland had left to play. But after a disappointing Christmas, this year the largest part of the business – women’s clothing – has finally begun to make progress.

“A 0.6% like-for-like increase in clothing sales over the quarter will hardly set pulses racing, but as evidence that the brand’s core business has ceased misfiring this modest number is worth its weight in gold for Marc Bolland.

“He still has a mountain to climb. Look beyond the flagship locations and many M&S stores are still a mess of baffling sub-brands. The relaunched website fails to inspire, and the brand’s ill-starred new distribution centre is still suffering teething problems.

“However Bolland’s cost-cutting and investment plans are showing signs of bearing fruit. Dealing with the brand’s legacy problems will take much longer – but the return to growth after such a long decline will give him the breathing space he needs to drive through more changes.

“The voices questioning whether M&S can continue to sell only its own brand clothing won’t have been silenced, but these results at least hint that M&S is returning to what it should be – a clothing retailer with a successful sideline in food, rather than a successful food retailer with a moribund clothing business holding it back.”

Bryan Roberts, Director Retail Insights, Kantar Retail

“While the general merchandise numbers might be the cause for muted celebration, the overall verdict is that the stars have aligned for a single quarter and we await consistent repetition of this feat before we can proclaim a recovery.

“What is heartening is the progress we have seen in recent store visits in terms of aspects of the range, merchandise and store fit. That said, womenswear needs to be consistently better across the whole range. The occasional screamer into the top corner doesn’t negate smashing the ball over the bar for the last four years.”

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