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Marks and Spencer making a comeback

The retailer will announces its first-quarter numbers on 7 July, and it is making ‘good progress’ on its recovery.

Marks and Spencer
Source: Bloomberg

In May, Marks and Spencer announced its first rise in full-year profits in four years, as well as its first dividend rise in three years. This is proof that Marc Bolland’s turnaround plan is working. The latest update from the company also affords Mr Bolland more time in the top job, allowing for the full execution of his plans for the retailer.

The food division has always been Marks and Spencer’s strong point, and last year’s performance was ‘outstanding’ – but the general merchandise operation still lags behind. As I previously stated, the retailer is making strides in the fashion industry, and the aim is to take on the big high street names, such as Next.

In the final three months of last year, the women’s division reported a small increase in sales. Mr Bolland stated the clothing department as a whole had ‘never had more design capability’. When Marks and Spencer has its general merchandise division up to the same standard of its food business, it will be firing on all cylinders, but that will be a few years from now. 

The cost-cutting programme is still under way, and the company is bypassing middlemen and going straight to distributors. The belt tightening has expanded to capital expenditure, which is also being reduced. To keep margins healthy, and to preserve its middle class image, Marks and Spencer has dropped its discounted offers. Keeping a tighter reign on its finances and restructuring its clothing department will pay off in the long-run.

Marks and Spencer will reveal its first-half numbers in November, and the market is expecting revenue of £5 billion. Last year’s second-half revenue figures came inline with market expectations at £5.4 billion. The retailer will reveal its full-year numbers in May 2016, and the market is anticipating revenue of $10.5 billion and adjusted net income of £574 million. These forecasts represent a 2% increase in revenue, and no change to the adjusted net income.

Investment banks are bullish on Marks and Spencer’s, and out of the 31 ratings, 15 are buys, 11 are holds, and five are sells. The average target price is £6.09, which is 12% above the current price. Equity analysts are less bullish on Tesco, and out of the 27 recommendations, nine are buys, 12 are holds, and six are sells. The average target price is 236p, which is 13% above the current price.

Marks and Spencer’s share price has been pushing higher since November 2014, but £6 proved to be a step too far, and the stock is receiving support from £5.40. Should this level be punctured it would drift back to £5. The upside target is £6, and a move through it will put £6.60 on the radar.

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