Where will Marks & Spencer fall on the Next (LON:NXT) to Debenhams (LON:DEB) spectrum of post-Christmas reports next Thursday?
There were signs in the first half of 2017 that things may be turning around for M&S, with the stock hitting a 12 month peak in late May. Yet that momentum soon dissipated and by the end of the year it was lurking at £3.14, having touched a 16 month nadir in November, marking a 10% decline across 2017. Marks & Spencer Group (LON:MKS) PLC now sits at a current trading price of £3.12.
The retailer’s last release came in early November, and only exacerbated the company’s late in the year decline. The headline interim figures were actually pretty decent – M&S posted a 2.6% rise in group revenue to £5.1 billion, while pre-tax profit jumped from £25.1 million to £118.3 million. There was even ‘encouraging’ signs in the struggling clothing and home department, with like-for-likes down a manageable 0.7% for the half year after Q1’s 1.2% decline was countered by a minor 0.1% drop in Q2.
The main issue came not with the figures, then, but the firm’s plans for the future. And while investors were likely pleased M&S is accelerating the closure of its underperforming clothing departments, the fact that it also announced it was slowing its Simply Food store expansion – the division saw a 0.1% slip in comparable sales – came as a shock. M&S stated that ‘in this uncertain environment it wouldn’t be wise to open a significant pipeline of new stores’, after Food gross margins fell 130bps ‘due to increased input cost inflation and limiting price increases to customers’.
So far in 2018 the market has been greeted with a surprisingly positive festive update from Next, and a dire profit warning from Debenhams. Investors will be hoping M&S is closer to the former than the latter, with the food division – which in theory should be in line for a big ol’ Christmas boost – likely the most important component.
Marks & Spencer Group PLC has a consensus rating of ‘Hold’ alongside an average target price of £3.59.
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