Marks & Spencer is still struggling

The high street retailer will announce its third-quarter trading statement on 7 January, and the pressure is on Marc Bolland as the share price printed a 14-month low.

Marks & Spencer store logo
Source: Bloomberg

The retailer will reveal its full-year figures in May, and traders are anticipating revenue of £10.4 billion and adjusted net income of £567 million. These estimates equate to a marginal rise in revenue and a 1.2% fall in adjusted net income. Marks & Spencer will also report its second-half figures on the same date, and dealers are expecting revenue of £5.56 billion, which compares with first-half revenue of £4.95 billion.

M&S’s share price suffered greatly in 2015, even though the company posted its first annual increase in underlying profits in four years. Dealers are still worried that the clothing division is holding back the food business.

This financial year has been a fairly similar story, as the food sales are growing at a minimal rate and clothing revenue is declining, but the key difference is profit margins in the clothing business are rising. The mild winter has caught out clothing retailers in the past, and Marks and Spencer’s could be hit by the mildest December since records began. Banks are bearish on Marks and Spencer’s clothing department, and some analysts are predicting a 2-5% fall in third-quarter general merchandise revenue at the retailer.

The business has seen a dramatic shift to online shopping in the first six months of the year, but it is worth pointing out it was coming from a low base – as last year the firm incurred some I.T. issues. Springboard stated footfall at UK retailers fell by 4.7% on the Saturday before Christmas this year, and the rise of Black Friday in the UK is partly to blame for this.

M&S is seeing success at its new ‘Simply Food’ shops, but at the same time it closed down a dozen stores in the first-half of the year, so the firm is focusing on quality rather than quantity when it comes to shops.

Equity analysts are very bullish on Marks and Spencer, and out of the 29 ratings, 14 are buys, ten are holds, and five are sells. The average target price is £5.57, which is 23% above the current price. Investment banks are less bullish on Sainsbury, and out of the 25 recommendations, six are buys, 11 are holds, and eight are sells. The average price target is 263p, which is 2.7% above the current price.

Technical analysis from Joshua Mahony MSTA, Market Analyst at IG.
M&S shares have been falling heavily in the second-half of 2015, with the stock now trading below the 200-week simple moving average. This is definitely not a good sign and the ease in doing so will not fill investors with confidence.

However, set within a longer-term backdrop, this is not out of the ordinary, with higher highs and higher lows created on the longer-term. With this in mind, we have not seen anything to suggest this is anything other than a temporary phenomenon which will resolve in a bullish manner.

That said, we are clearly set in a downtrend that has lasted over nine months, yet the wider bullish outlook means it is worth looking out for bullish reversal signals in the shorter timeframe to instigate a resurgence in this stock. This bullish view holds unless price closes below £3.81.

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