Marks & Spencer Group plc (MKS) Ordinary 25p

Full year results: Three years into its transformation plan and investors are still being asked for patience. Profits fell, including at the strategically targeted international business, whilst the dividend has been left unchanged. The store format continues to be adjusted, whilst significant hope now rests with its new Autumn/Winter clothing ranges.

That said, the performance does come against ongoing unseasonal weather, whilst the size of the task taken on by Mr Bolland (CEO) should not be underestimated. The group is finally moving convincingly into the digital age, while its food business remains a huge positive, given the trend for pressured consumers to reward themselves with premium food.

In all, a cut in group investment spending going forward does look to signal some management confidence in the outlook, with the foundations having been built, whilst the numbers themselves are at least in line with forecast. The share price rose by over 3% in early morning trading. For now, and with some optimism for the future expressed in a 30% gain in the share price over the last year, analyst opinion currently denotes a hold, albeit a strong one.

Register to receive our Marks & Spencer Group updates direct to your inbox. Please note, you will automatically receive our updates if you hold Marks & Spencer Group shares in Vantage.

Financial Highlights:

• Total group sales rose by 1.3% to £10.0 billion
• Like-for-like UK sales declined by 1.0%: Food +1.7%; General Merchandise -4.1%
• Underlying profit before tax of £665.2 million reported, down from last year’s adjusted  £687.2 million (reported £705.9 million)
• International operating profit of £120.2 million reported (last year £133.4 million)
• For the year ahead (2013/14) group capital expenditure is expected to be c. £775 million, a reduction on management's previous guidance of £850 million
• Full year dividend of 17 pence per share (last year 17 pence)

Negative Points:

• Profit has fallen compared to the prior year. Underlying profit before tax of £665.2 million was reported, down from last year's adjusted £687.2 million (reported £705.9 million). Basic earnings per share of 29.2 pence (last year 32.5p).
• Same store sales for its General Merchandise division continue to fall. The retailer recently posted a seventh consecutive quarterly drop in underlying general merchandise sales, falling 3.8% on a like-for-like basis in the 13 weeks to 30 March. Like-for-like UK General Merchandise sales over the year fell by 4.1%.
• Accompanying management comments highlighted "a highly promotional clothing market and unseasonal weather." Management went on to note that "the improvement in product will take time to come through."
• While total International sales grew by 4.5%, including new store openings, operating profit for the business declined to £120.2 million (last year £133.4 million). Management noted that "trading in legacy markets was once again impacted by macroeconomic pressures. Our European business was impacted by the ongoing weakness of the Irish and Greek economies."
• Following a strategy adopted by the previous CEO, new concept stores at the group continue to be pursued. The company commenced the second phase of its store transformation programme, which includes the roll-out of its new M&S Beauty department.
• The total dividend for the financial year was left unchanged compared to the previous year.
• Unlike some rivals, M&S does not have a material online food proposition.
• Continuing pressure on consumers' disposable income remains a concern for many British retailers.

Positive Points:

• Group capital (investment) expenditure is expected to be c. £775 million in 2013/2014, a reduction on management's previous guidance (£850 million). The group highlighted that 2012/13 marked the peak year of its investment. This appears to signal management confidence in the outlook, with the foundations having now been built.
• The CEO noted that "we focused on full price sales and more effective management of markdown, thereby protecting our gross margin." The UK gross margin rose by 0.1%.
• Management noted that "we are working hard to get the General Merchandise performance back on track. We have already made progress in our operational execution, and our new Autumn/Winter ranges have received a positive reaction."
• Food sales were up 3.9%, with like-for-like sales up 1.7%. Food gross margin was up 0.35% to 31.7% due to improved buying and better management of promotional spending.
• Current trading over the first seven weeks of the new financial year proved in line with management expectations.
• The sales performance for its new concept stores has been 3% ahead of the rest of the business, an improvement on the initial 2.6% uplift, delivering a 13% internal rate of return, ahead of management's hurdle rate of 12%.
• Multi-channel sales accelerated, growing by 16.6%. Over 3.6 million weekly visitors to its UK website were reported. The online business now accounts for 13% of its General Merchandise sales. In May 2012, it re-launched its mobile optimised site. As a result, mobile and tablet sales increased by almost 200% and now account for 18% of multichannel sales. Seven international websites launched in Europe and China. A new 900,000 square foot e-commerce distribution centre at Castle Donington was established.
• Sales for its International business grew by 4.5% on a constant currency basis, reflecting strong growth in its priority markets. M&S now trades from 418 stores in 51 territories. It continued to grow its presence in Shanghai, with the opening of seven new stores.
• The company has on occasion been subject to takeover speculation.
• The board adopts a dividend policy which remains attractive in the current low interest rate environment. A yield of over 3.5% as of 21st May (not guaranteed). 

All yield figures are variable and not guaranteed.