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Tuesday, 08 November 2011 |
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 Marks & Spencer has climbed 12p to 338p after announcing first half figures in line with expectations and despite recent timely downgrades. Profits in the preferred British retailer fell 10% to £315m and second quarter like for like sales dropped
for the first time in two years.
Marks & Spencer reported a profit before tax and one-off items of £315m in the 26 weeks to October 1, slightly above the new consensus of £311m, and down from £349m in the same period last year. Pretax profit was down 8pc £320.5m in the half, while revenue scaled 2.4pc to £4.68bn. Like-for-like sales from M&S' British stores fell 0.7pc in the second quarter, with a 2.5pc drip in clothes, gifts and homewares sales partially offset by a 1pc rise in food.
“Against a challenging consumer backdrop, we took decisive action to manage the business through the short term while continuing our focus on investing in creating a stronger platform for future growth,” positively advanced Marc Bolland, Chief Executive. “We maintained our share of the Clothing and Food markets and, in an increasingly promotional environment; we managed costs tightly and took a decision to invest in giving our customers better value, choosing not to pass on the full extent
of the increases in commodity prices.”
Analyst Freddie George at Seymour Pierce said for The Guardian: “Following this update, we are downgrading our recommendation from buy to hold and reducing our price target from 360p to 330p. We are not, however, reducing our 2012 pre-tax profit of £705m, which implies broadly flat profits in the second half. Although, in our view, there is limited downside to the share price as the stock is supported with a 5% plus dividend yield we believe there are better investment opportunities elsewhere and consider that earnings are likely to be static over the next two years while management concentrates on refurbishing its outlets and changing the marketing focus. The real prize over the next three years remains the internet and international opportunity supported with systems and logistics infrastructure upgrades.”
In similar tone, Clive Black at Shore Capital however said he might downgrade forecasts, as “There is a live debate on the investment case to M&S to our minds that in essence comes down to faith or otherwise in the ongoing ideas and work of chief executive Marc Bolland. We do harbour concerns as to the magnitude of M&S' capital expenditure budget and would welcome some downward rebasing of the extent of the programme; we note current year guidance for £700m-£750m, down from around £900m previously. That said, we do rate Mr. Bolland very highly as a marketer and we see scope for excellence in this area to support core trading in apparel and food in the UK.Whilst we are disappointed by the lack-lustre second quarter trading and a downgrade to earnings, we believe that self-help, new channels and effective marketing can yet lead to pleasant surprises on the upside too over the next 18-24 months. Therefore, recognising a 'good' two-way pull on the investment case, Shore Capital reiterates its buy stance on the shares.”
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