Hargreaves Lansdown

Marks & Spencer Group plc (MKS) Ordinary 25p

Sell: 533.00pBuy: 533.50p02.00p (0.38%)
FTSE 1000.57%
Market closedPrices as at close on 30 July 2015Prices delayed by at least 15 minutes | Switch to live prices |
* Please note that there can be occasions when the Selling price shown may be temporarily higher than the Buying price. This can sometimes happen when the stock market is closed but it can also happen at other times for a variety of reasons. However, when the stock market is open and you place a trade, the selling price available to you will never be higher than the buying price. Live prices will be available when you place a deal with us during market hours. Please check these and contact us if you are unable to deal online.

HL comment (7 July 2015)

Marks & Spencer has issued a brief first quarter trading update, covering the 13 weeks to 27 June 2015. The results are broadly in line with expectations, with Group Sales rising by 1.8% on a constant currency basis and full year guidance remaining unchanged. The shares were around 1% higher in early morning trading.

Our view:

Today's results from M&S paint a familiar picture. The performance of the General Merchandise business, which includes the core clothing ranges and the M&S Home offering, remains uninspiring. Food, on the other hand continues to chug along nicely, registering its twenty third consecutive quarter of LFL sales growth.
Online sales recovered strongly in the quarter, which is encouraging, but investors shouldn't read too much into it. It is more a reflection of the problems suffered last year after M&S botched the transition to a new, company designed and operated platform, having previously outsourced much of their ecommerce operation to Amazon.

CEO, Marc Bolland, has invested heavily over recent years to try to improve profits at General Merchandise. This has entailed modernising systems and using more sophisticated sourcing to try and maximise the value of M&S's £10bn p .a. sales base. This took time and cost a lot of money, depressing free cash flow as the spending took place.

Now, M&S hope to reap the reward. So far, they can't look to the top line with confidence, because outside of the foods business, progress is pedestrian at best. But the margins that M&S are set to generate are looking livelier, as the benefits of the new systems, sourcing and distribution networks kick in.

Over the next few years, this should support shareholder returns, with a £150m share buyback programme due to start on 8 July; the first of an intended regular, additional return of capital, enabled by M&S having moved out of the heavy capex phase of its investment programme.

Our concern for Marks and Spencer though is longer term in nature. When it meets its own expectations, the group is pretty good at what it does, but what it does not do is attract a younger shopper. If M&S was the place that Mum dragged you to buy your undies and school uniform, it's probably not the place you will choose to buy clothes as an adult. But thankfully, Home and Food don't seem to suffer from that association. M&S has ceded a lot of market share in clothing over the years, as newer shoppers have turned to more fashionable rivals, whilst Primark and other discounters have captured market share, hand over fist, too.

With the benefit of stronger cash flow, M&S has some breathing room to try and work out how to bring back the customers it lost over the last decade. At current levels, the shares offer a prospective yield of 3.4% (variable and not guaranteed), slightly below the market average of 3.7%. The shares trade on a consensus forward PE ratio of around 15.2x, according to Bloomberg which is around a 25% premium to their longer term average rating, suggesting there may already be a degree of optimism built into the market’s expectations for M&S moving forward.

Register to receive M&S share research updates direct to your inbox for free

Key highlights:
Food sales were up 3.2%, with LFL sales 0.3% ahead. M&S are on track to open around 90 Simply Food stores this year, and continue to see good performance from stores opened to date.

General Merchandise sales were 0.2% ahead of last year, but LFL sales fell by 0.4%. Online sales grew strongly (+38.7%), but this reflects a very weak comparative. M&S experienced teething problems following the launch of its new website last year, which caused online sales to fall by 8.1% in the prior year quarter.  M&S is on track to deliver its full year gross margin guidance of +150 to +200 basis points.

International showed modest constant currency growth (+0.7%) against a “challenging” economic backdrop. Key priority markets such as India and Hong Kong are said to be performing well.

Marc Bolland, Chief Executive, commented:
"We continue to make progress against our key priorities. Our Food business did very well in a difficult market. In General Merchandise, sales were broadly level on last year and we are on track to deliver the planned increase in gross margin. M&S.com performance was very strong, with customers appreciating all the improvements to our website."

Read more share research from Hargreaves Lansdown

All yield figures are variable and not guaranteed.

Deal now Deal for just £11.95 per trade in a ISA, SIPP or Fund & Share Account

Wealth 150 fund

The Wealth 150 is a list of what we believe are the best funds in all the main sectors. For a fund to be selected for the Wealth 150 it must pass a rigorous selection process, and we continually monitor the list to ensure it only contains the best funds.

Wealth 150+ fund

The Wealth 150 is a list of what we believe are the best funds in all the main sectors. For a fund to be selected for the Wealth 150 it must pass a rigorous selection process, and we continually monitor the list to ensure it only contains the best funds.

As investment returns depend on two factors - performance and charges - we have identified from the Wealth 150, the funds we believe offer the very best combination of outstanding performance potential and the best prices. These are the Wealth150+ funds. In many cases these super-low charges are only available through the Vantage Service - a unique benefit to Hargreaves Lansdown clients.

Core Tracker fund

The Core Trackers list represents what we believe are the very best trackers in each of the main sectors. We analysed each fund's management, process and performance to find the best combination of quality and cost. We want to ensure that the fund has not only tracked its index closely in the past, but that it has the best potential to track well in the future. In many cases these super-low charges are only available through the Vantage Service - a unique benefit to Hargreaves Lansdown clients.