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Marks & Spencer Group plc (MKS) Ordinary 25p

Sell: 434.40pBuy: 434.70p09.50p (2.23%)
FTSE 1000.27%
Market closedPrices as at close on 19 September 2014Prices delayed by at least 15 minutes | Switch to live prices |
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HL comment (8 July 2014)

First quarter trading update: Against a backdrop of low expectation, M&S appeared to offer some hope. The share price rose by over 1% in early stockmarket trading. An increased focus on profit margin generates potential longer term optimism, with General Merchandise sales no worse than forecast. Key Womenswear sales grew, while a recent improvement in online sales, despite previously flagged difficulties, provided some relief.

On the downside, General Merchandise sales again retreated, whilst like-for-like food sales were marginally below forecast. Furthermore, the group's international sales were not without difficultly given ongoing challenges in Ireland and shipment timing issues this time around to franchise partners in the Middle East.

For now, M&S appears to remain a work in progress. The group's offering continues to be honed, food sales are expanding, bolstered by the roll-out of new Simply Food stores, whilst the strength of the group's brand name and the still attractive dividend yield (over 3.5% - not guaranteed) cannot be forgotten. In all, the current CEO and former head of Morrison's is still being given the benefit of the doubt, with analyst opinion pointing towards a strong hold.

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Highlights:
  • Total group sales increased by 2.3%
  • Like-for-like or same store General Merchandise sales declined by 1.5%
  • Like-for-like or same store Food sales rose by 1.7%
  • M&S.com sales fell by 8.1%
  • International sales increased by 4.7%

Negative Points
:
  • UK non-food or General Merchandise (GM) like-for-like sales fell by 1.5%. This is now the 12th consecutive quarter during which GM or clothing and homeware have declined.
  • Management previously noted that "our new M&S.com site will take four to six months to settle in and, as a consequence, will have some impact on General Merchandise performance in the first quarter." M&S.com sales fell by 8.1% in the quarter, compared to a gain of 23% over the last full financial year.
  • The group's push overseas has yet to convince, given the difficulties which other retailers such as Tesco have now run into. Ongoing challenges in Ireland and shipment timing issues this time around to franchise partners in the Middle East were reported. International underlying operating profit for the last full financial year rose by 2.1% (up 4.6% on a constant currency basis). 
  • Unlike some rivals, M&S does not have a material online food proposition. Like-for-like food sales (+1.7%) were marginally below the consensus analyst forecast (+2.0%).
  • Competition in the online arena remains intense. While M&S online sales fell during the quarter, sales at Next's online and catalogue business, Next Directory advanced by 12.4% to £1.34 billion during its last full financial year.
  • Although in line with expectations, the group’s final dividend payment for the last financial year was left unchanged from the previous year.

Positive Points:
  • Growth in the important Womenswear category was reported.
  • An increased focus on profit margins is being made.
  • The Food business continues to make progress. Like-for-like UK food sales rose by 1.7% over the quarter. A pipeline of 150 new Simply Food stores to be opened over the next three years remains on track.
  • The group noted that "our full year (profit) guidance remains unchanged."
  • While previously flagged difficulties with the company's website did impact, management noted that "We have recently seen a gradual improvement in sales performance, despite a lower level of promotional activity. We expect to return to growth ahead of our peak trading period."
  • International sales increased by 4.7% on a constant currency basis. Management noted that "Our International business continued to perform well, with particularly strong performance in our priority markets."
  • The dividend payment remains attractive in the current low interest rate environment - a yield of over 3.5% as of 8th July 2014 (not guaranteed).

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All yield figures are variable and not guaranteed.

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