Marks & Spencer yesterday (25 May) announced its first set of full year results under new chief executive Steve Rowe, which saw the retailer post a slight increase in revenue (+0.8%) to £10.4 billion, however it also saw a drop in profit before tax.
Here's how the leading retail analysts saw it.
Clive Black at Shore Capital said, "The update from M&S has a strategic bent as Mr. Rowe starts to impose his character and outlook on the business. […] The business is in listening mode at the moment, centred on the core customer (a 50 year old female) but with clear ambitions to be more broadly based. Customers tell M&S that they like the food proposition and want more innovation. In clothing, the story isn't so easy, no surprise here, and so the fundamentals need to change; Mr Rowe speaks of a need for change on style, price and merchandising. Rowe is looking for more wearable and contemporary styles with better core value (lower prices); one-third of the range will be cut in price for the summer season and there will be fewer sales and promotions; 'right price as the first price' (c40% FY2016 lines were on some form of discount)."
James Collins at Stifel said, "Management’s strategy is largely as we expected – focused on returning the non-food business to profitable growth – and the short-term investment required in prices and customer service is also not far outside our expectations. Where the market is likely to be surprised, though, is management’s guidance that the sales trend is unlikely to improve this year versus last, given a tough backdrop, price investment and reduced promotional spend. The consequence is likely to be significant (maybe high single digit to low double digit) downgrades to consensus forecasts. While the shares might take a knock today, we think they remain cheap on cash flow metrics and that the market will be prepared to factor in some profit recovery potential."
Ernesto Bisagno at Moody's said, “M&S indicated that market conditions continue to be challenging, which is line with our view that profit growth could decline in the next 12-18 months for the UK non-food clothes retail sector as a whole, due to weaker clothing sales and declining consumer spending. Although we expect further margin improvements in 2016-17 in line with management’s guidance, we expect additional pressure on M&S’s profits from the weak consumption on clothing and increased focus on lowering prices, although the latter could provide some support to sales as M&S aims to win back more customers.”
Barclay's European Food Retail Equity Research said, "Steve Rowe’s strategy focus was clearly given to General Merchandise, with the main piece of info coming from the release being the price investment in GM and the reduction in promotions, which according to management will impact profits but there is no quantification. The strategic update does not touch on the UK store estate, which may disappoint a few investors, although M&S says they will update investors in autumn for that matter. Overall, the strategic update although says sensible things on how to improve GM positioning, maybe lacks the detail many investors would like to see."
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