News, Culture & Society

M&S shareholders will need to hold on tight  

Steve Rowe, the boss of Marks & Spencer has sought to reassure investors that the retailer ‘has a clear line of sight on the path to make M&S special again.’

The group’s shareholders have been in for a turbulent time over the last few years and the FTSE 250-listed company’s share price remains around 36 per cent lower than it was two years ago.

But, having been able to remain open in some form throughout the pandemic, Marks & Spencer has seen its share price swell by 65 per cent in the past year, against a 33 per cent hike for the wider FTSE 250 index.

Rollercoaster ride: M&S shareholders have been in for a turbulent time over the last few years

Fluctuations: A chart from UBS showing the stock price and price target shifts for M&S

Fluctuations: A chart from UBS showing the stock price and price target shifts for M&S

Changes: A table from UBS showing the stock price and price targets for M&S over a set period

Changes: A table from UBS showing the stock price and price targets for M&S over a set period

‘The recent price rally has led investors to conclude that the shares are currently up with events, with the market consensus coming in at a hold, albeit a strong one’, Richard Hunter, head of markets at Interactive Investor, said. 

The group, which posted a £201million loss for the past year and is set to close 30 more stores, saw its share price rise sharply today. Shares in the retailer are currently up 6.26 per cent or 9.77p to 165.72p.  A year ago the share price was 100.30p and five years ago the group’s share price stood at 369.75p.

Driving its share price up today, M&S said it was making progress with its turnaround plan, had traded strongly in the early weeks of its 2021/22 financial year. Its food arm has fared well during the pandemic and its recent tie-up with Ocado has proved a hit with shoppers.

But, the company still has some hefty hurdles to overcome and the rollercoaster ride for its shareholders is far from over.

The situation now is a far cry from back in 1998 when M&S became Britain’s first retailer to post full-year pre-tax profits of more than £1billion. 

In the past year, the retailer’s clothing and homeware sales fell by 31.5 per cent last year, reflecting the ‘heavy impact’ of lockdowns on stores. Clothing and home operations saw a £129.4million operating loss, but M&S said the performance improved in the second half of the year.

Across its clothing lines, M&S has been increasing the number of brands available it has on sale. Earlier this year, for instance, M&S snapped up the Jaeger fashion brand from administrators, in a deal that excluded the stricken retailer’s 63 standalone stores.

M&S is also now selling a string of well-known brands  on its website, including Hobbs, Joules and White Stuff.

As part of its turnaround plans, the retailer has already shut or relocated 59 stores, and axed 7,000 jobs across its store and management teams.

The 30 planned closures announced today will be part of a shake-up of around 110 stores, with the majority of these sites set for relocation. Some will pop up in former Debenhams stores. 

Stronger: M&S food arm has performed well in the past year, new results show

Stronger: M&S food arm has performed well in the past year, new results show

The group currently has 254 full-line stores, which sell food and clothing, but it plans to reduce this to around 180 over the next decade, with some of these being replaced by food-only or purely clothing and home sites. 

The extent of M&S’s financial woes were unmasked in November when it posted a loss for the first time in its 94 years as a public company.

The high-street giant fell to a £87.6million pre-tax loss for the 26 weeks to 26 September, down from a £158.8million profit in the same period the year before. Revenue for the half-year period in question dropped 15.8 per cent to £4.09billion after it was hit by lower clothing and home sales.

The gloomy half-year update came as M&S continued to plough on with its ‘Never The Same Again’ transformation programme.

It said the programme would enable the business to emerge from the crisis in a ‘stronger, leaner and more focused position.’

Unlike some retailers, M&S also opted to retain its multi-million-pound business rates relief from the worst of the pandemic, analysts at IG noted.

Brands: M&S is now selling clothing ranges from retailers like Jaeger on its website

Brands: M&S is now selling clothing ranges from retailers like Jaeger on its website

Sophie Lund-Yates, an analyst at Hargreaves Lansdown, said: ‘To say all the challenges are over would be a gross misstatement. The picture for Clothing & Home remains very tricky. 

‘The work being done to streamline the store estate and drag more of the business online must be applauded, but it’s too early to call if these gargantuan efforts have simply come too late. 

‘A restructuring effort this intense comes with huge risk, and there’s a chance the profit and cash outflows that come with it stretch further into the future than M&S is planning for.’

Meanwhile, Adam Vettese, an analyst at eToro, said: ‘Marks & Spencer has had plenty of false dawns over the years, so you can forgive shareholders for rolling their eyes when the board using language such as ‘forging a reshaped M&S’.’

Looking ahead, M&S expects its profits for the next year to come in at between £300million to £350million.

Analysts at UBS said: ‘At the mid-point of £325m, the outlook is 9% ahead of consensus as a result. MKS signalled that it will be looking to assess the reintroduction of a dividend but that it is unlikely this year while profitability is being restored as well as balance sheet metrics improving to investment grade.’

They added: ‘Valuation: We rate MKS as Neutral; we expect the shares to receive the profit outlook positively, with some upgrades.’ 

View from the boss: ‘The transformation has moved to the next stage’

In charge: M&S boss Steve Rowe

In charge: M&S boss Steve Rowe

Steve Rowe, chief executive of M&S, said today: ‘In a year like no other we have delivered a resilient trading performance, thanks in no small part to the extraordinary efforts of our colleagues.

‘In addition, by going further and faster in our transformation through the Never The Same Again programme, we moved beyond fixing the basics to forge a reshaped M&S.

‘With the right team in place to accelerate change in the trading businesses and build a trajectory for future growth, we now have a clear line of sight on the path to make M&S special again.

‘The transformation has moved to the next phase.’

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

Read more at DailyMail.co.uk