US Edition Marks and Spencer
509p+22
Questor says HOLD
MARKS and Spencer is struggling to get its mojo back in a highly competitive clothing market. However, the core food business reported accelerating sales growth, sending the shares more than 4pc higher yesterday.
Total sales at the group have increased by 3.6pc during the first six months of the year to £4.9bn. The food business, responsible for 55pc of the group’s revenue, reported strong numbers that offset a clothing decline.
Second-quarter food sales rose 3.2pc, after gaining 1.6pc at this stage last year. International sales rose by 7.4pc and sales on mobile devices soared by 70pc, with about 25pc of all sales from tablets, up from 11pc a year ago.
The performance in general merchandise, which includes clothing, was less inspiring. Second-quarter general merchandise sales declined by 1.3pc, following a 1.6pc decline during the first quarter.
Underlying pre-tax profits in the first half were £261.6m, down 8.7pc from £287.3m at this stage last year. Some of this fall in profits was due to £10m in higher costs from opening a new dedicated online distribution centre in the North East, but rising cost inflation was the main culprit that ate into profits.
All the headlines around M&S have concentrated on the stuttering start of the much awaited autumn/winter womenswear range, but the food business is growing revenue and on improving margins.
The shares have risen more than 30pc this year and the retail group now has a market value of about £8.14bn, which is backed by £5bn in property assets. The dividend was held at 6.2p at the interim stage and, as such, offers a forecast yield of 3.4pc.
So, the shares – trading on 15.4 times forecast earnings, falling to 13.7 times next year – remain a solid hold, but until there are concrete signs of a clothing turnaround then it is difficult to see a compelling reason to allocate cash here. Hold.