Profits at the high street retailer have risen for the first time in four years and its chief executive, Marc Bolland, says the company is moving in the right direction. What do the analysts think?
Clive Black at Shore Capital
Could M&S deliver £1bn of pre-tax profits again? The answer to this question is: not anytime soon. However, it is not beyond reason to assert that with sustained revenue growth in general merchandise, with progress in food and some tailwind in international markets, that M&S could make considerable strides to this figure and quickly. With sales growth comes more fulsome gross margins, aided by better buying and lower markdown. With a lot of work undertaken on central overheads and infrastructure through the Bolland-Stewart plan, then positive operational gearing could also be the order of the day.
Freddie George at Cantor Fitzgerald
Although we believe that at last there have been some visible improvements to the fashionability and quality, and more consistency with the womenswear ranges over the past year, it will be a challenge to keep the positive momentum going in sales in both general merchandise and food. Since 2008, UK pre-tax profits have declined by a third, international profits have been flat, the dividend has been reduced and net debt remains above £2bn. The initiatives relating to the supply chain and IT will not, we believe, lead to a significant increase in sales or profits over the medium term. The initiatives do, however, address under investment from the past and bring the infrastructure up to the standards of international peers.
Jamie Merriman at Bernstein
Today’s results are slightly better than expected, though guidance is a case of puts and takes. On the positive side, M&S did announce the buyback, as expected, Simply Food store expansion will be faster than previously guided, and M&S continues to expect significant gross margin expansion in general merchandise. On the negative side, the buyback is lower than we had expected, cost growth guidance is higher than expected, and international space growth is lower than expected.
Julie Palmer at Begbies Traynor
M&S’s designs have achieved their goal of winning over the fashion industry and discerning shoppers alike. In addition, it appears after the Christmas chaos of last year, when M&S.com had to delay deliveries by up to two weeks, the group has finally got its ducks in a row for its online platform as sales were back in growth for the final quarter. However, M&S still has some way to go if it is going to live up to the example set by close rival Next. While M&S may outperform in revenue terms, Next wins hands down when it comes to profits, suggesting Bolland could drive operational efficiency and boost profit margins still further.
David Jeary at Canaccord Genuity
A sustained growth trend (ie positive like-for-like sales) in general merchandise remains the elusive prize. Delivery on this would drive a further profits forecast re-rating in our view, but there is less certainty on this front, despite the encouraging performance in the fourth quarter.
Bryan Roberts at Kantar Retail
M&S has, at last, genuinely pleased the market with plenty of good news across both strands of the UK business, encouraging updates on sourcing and the resultant benefit for margins. After several bouts of self-inflicted foot-shooting, UK multichannel is back on track and we await with interest to see if the suede skirt continues to fly out of the fulfilment centre. The elephant in the room continues to be M&S’s ability, or lack thereof, to recruit and retain younger shoppers. Will the business be content serving an ageing customer base? Or is something more radical required to increase the retailer’s relevance to the more youthful market segment?
