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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?

All trading involves risk. Losses can exceed deposits.

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. 

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. 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. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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