M&S stands at a crossroads

It is finally time for Marks & Spencer (M&S) to unveil its new strategy, but will it be enough for investors?

M&S has been stuck between a rock and a hard place for many years, but its problems have multiplied of late. The firm finds itself between the ‘pile ‘em high, sell ‘em cheap’ brigade, symbolised by Primark, and at the other end it faces the growth of affordable luxury brands. M&S has lost custom to both types of firm, and as a result the general merchandise business has failed to gain any momentum in recent years.

It is likely that chief executive Steve Rowe will focus on two aspects – price cuts and improving the quality of clothes, while the number of brands may also be cut back in an effort to focus efforts on key lines. Clothing and other general merchandise still accounts for two-thirds of group profit, but it is here where M&S needs real improvement. The CEO may look at boosting the space given to food lines in many stores, since this has shown good growth, notably in the ‘Simply Food’ stores.

Marc Bolland, the previous CEO, achieved much in his time, and perhaps would be better remembered had he departed earlier than his January handover. Even at around 440p in January (almost exactly where the shares are now), the share price has comfortably outperformed the FTSE 100 since 2011. But now Mr Rowe must convince investors that improvements can be made, even if this costs money.

At present, earnings are expected to see earnings rise 4% for the year to March 2016, while forecasts for the coming year suggest 7% growth. With a yield around 4.7%, the shares look to provide decent income, although increasing cost pressures may bear down on this in the longer term.

The shares have clawed their way back to the key 440p area, where momentum has stalled in February and April, so a firm break above 448p would then head towards the 200-day simple moving average at 463p, while the next target would be the 480p level, previously support in the August–October 2015 period. 

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.