Marks & Spencer shares are slipping back after the second broker downgrade in two days.
On Wednesday JP Morgan Cazenove moved from overweight to neutral and cut its price target from 600p to 550p on concerns about negative like for like quarterly sales in general merchandise and worries that growth in the food division could be hard to achieve.
Now Peel Hunt has reduced its recommendation from hold to sell and slashed its target from 530p to 450p. Analyst Jonathan Pritchard said:
Underlying trading conditions have been infinitely better this year than last but we fear that yet again M&S has failed to read the script. Despite a very easy comp, we are concerned that like for like for general merchandise remains in negative territory, a quite breath-taking indictment of its ranges this season. Even if the cost savings and sourcing gains come through on track, and food stays in positive territory (neither certain), that won’t hold back the tide. A second half like for like bounce-back is unlikely: for us the bottom line is that without general merchandise sales growth, the shares are likely to struggle.
We have anecdotally picked up from core shoppers that the product is slipping in quality terms: is M&S finding some of its gross margin gains by compromising the spec of the garments? It’s not impossible and if it is, then it will be a long road back in customers’ eyes. It’s more likely that M&S is simply failing to keep up with the demands of its broad church of customers. Something else that will concern those invested in M&S for cash flow is that we think the stores need capital expenditure to bring them up to standard. The lack of excitement/flair is another thing that core shoppers persistently report to us.
Marks shares are currently down 6.4p or more than 1% at 492.7p.
