There have been so many false dawns at Marks & Spencer during Marc Bolland’s four years as chief executive that any cheery noises should be treated with extreme care. But there is a reason why the share price is up 9% today: after three years of declines, profits are on track to increase this financial year.
The holy grail – consistently higher clothing sales – hasn’t been achieved, though. Five better months were undone by one bad one. Warm weather took the blame but, remember, Next still reported higher sales in the “hot September” quarter. M&S, still losing market share in clothes, remains miles away from that league.
Instead, the source of encouragement for investors lies away from the shopfloor. There is evidence that the huge sums spent by Bolland on upgrading M&S’s infrastructure and improving efficiency may – finally – be about to deliver benefits.
Cost-saving measures – such as buying fabric in bulk – helped gross margins to rise 1.5 percentage points in general merchandise. That was the main reason why pre-tax profits edged 2.3% higher to £268m in the half-year. An open question is whether those gains will have to be recycled into lower prices for customers, but at least M&S has ammunition at its disposal.
In the meantime, the food side runs reliably, with like-for-like sales up 1%. If the non-food end of M&S can learn to live without massive capital expenditure (which is the plan), better cash flows may mean higher dividends again. The interim payment was nudged up 3% and Bolland teased by promising “a further update on shareholder returns” next May.
In the long term, the picture at M&S hasn’t changed. Its customers are still getting older and there is little sign that market share can be regained in clothing. In the medium term, though, profits, cash generation and dividends ought to improve. To use Bolland’s wearisome theme of “a step-by-step journey,” M&S may be going in the right direction.
Tough luck if you bought shares a year ago at 500p, during the last outbreak of optimism. But at 442p, and with a dividend yield of almost 4%, the odds on betting on a revival at M&S are much better now.
