Shares in Marks and Spencer are higher today as the headline profit figure topped analysts’ estimates.
Full-year underlying pre-tax profits fell by 5.4% to £580.9 million, while the consensus estimate was for £573 million. The retailer had one-off costs of £514.1 million, of which £321 million was for UK store closures. When you factor in the exceptional items, profits fell by 61.2% to £66.8 million. The company plans to aggressively close more stores in the coming years, so we can expect further costs in relation to the restructuring.
Marks and Spencer finished the year on a low note. Fourth-quarter like-for-like clothing sales dropped by 3.4%, while analysts were expecting a fall of only 1.3%. The clothing division has been underperforming, and these figures highlight the poor state of the department. Fourth-quarter food sales jumped by 3.2%, but when you strip out new stores it fell by 0.6%. The food division has been carrying the company in recent years, and now we are seeing it go through a soft patch.
Marks and Spencer expects gross margin to fall between 0 and 50 basis points as input cost inflation and price investments are expected to weigh on the bottom line. This outlook won’t give much comfort to investors as the company has been muddling along recently.
Marks and Spencer has already closed 22 stores, and it plans to cut more than 100 stores by 2022. The ‘radical transformation’ is a part of the wider plan to reduce the amount of shop floor that is allocated to the clothing division. The aim is to reduce the space for clothing by 5% by years end.
Despite the drastic changes to the company, and the reorganisational costs, the final dividend was left unchanged at 18.7p, while net debt was cut by 5.5%. This suggest the board are not overly concerned about the financial health of the company.
The first-half and third-quarter figures from the company weren’t too hot, especially as the all-important Christmas period was mixed. The results were only relatively good, as companies like Zara, Moss Bros, and Debenhams have been struggling. British consumers are under a little less pressure, now that inflation dipped and average wages are creeping higher. Since Marks and Spencer are coping better than most retailers, they could be in line for a better run in the next few months.
The retailer is continuing with its plans to obtain more sales online. Mr Rowe has a good grasp about which way the entire retailer sector is heading, and that is why he is keen to close stores that are under performing, and try and focus more on the e-commerce angle. The company has been shutting stores, and seeing a lot of the business flow over to nearby Marks and Spencers stores – so customer loyalty is strong. This should stand to the firm as it sticks to the path of slowly reducing its presence on the high street.
According to GlobalData, Marks and Spencer held 13.5% of the British clothing sector in 1997. Now the retailers has 7.5%, narrowly ahead of Primark who have a 7% share of the market. These figures highlight how much ground the firm has lost, and underlines the need for major change.
The stock has been in a downtrend since 2015, but it has bounced back since April, and if it clears 308p – the 200-day moving average, it could target 328p. A break below 277p, it could pave the way for 262p to be retested.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
Disclaimer: CMC Markets Singapore may provide or make available research analysis or reports prepared or issued by entities within the CMC Markets group of companies, located and regulated under the laws in a foreign jurisdictions, in accordance with regulation 32C of the Financial Advisers Regulations. Where such information is issued or promulgated to a person who is not an accredited investor, expert investor or institutional investor, CMC Markets Singapore accepts legal responsibility for the contents of the analysis or report, to the extent required by law. Recipients of such information who are resident in Singapore may contact CMC Markets Singapore on 1800 559 6000 for any matters arising from or in connection with the information.
