Marks & Spencer Q1 Results: What The Analysts Said
Marks & Spencer posted a 0.5% decline in like-for-like sales in its home UK market in the first quarter of its financial year, with chief executive Steve Rowe saying that the performance "was in line with our expectations". Here's how leading retail analysts saw it:
Himanshu Pal, Kantar Retail
"While M&S Food witnessed a 0.1% decline in LFL sales, the performance is an improvement over the 2.1% decline in Q4 2016. The improvement could be attributed to grocery price inflation (+3.2% for the 12-week period ended 18 June 2017), and weak sales growth the same time last year. This should come as good news for investors and the M&S management team considering the rather disappointing finish to FY 2016 with LFL sales declining 2.1% in Q4 2016 (period ending 1 April 2017). M&S will need to keep reinvigorating its food offer if it wants to maintain dominance with its traditional shopper base. One such area is helping shoppers make healthier eating choices, which now account for ~41% of M&S’ food sales."
Barclays European Food Retail Equity Research
"On Food, M&S says new stores continue to perform ahead of expectations. On Clothing, M&S says it continues to grow full price sales (+7%), with reduced discounting and no clearance sales in the quarter. Overall, the sales numbers are modestly below expectations but the commentary is reasonably encouraging with new Simply Food stores performing well and the increase in full price clothing sales sounding positive for profit implications."
Ernesto Bisagno, Moody’s
"Whilst we expect the underlying markets to remain challenging, we anticipate a modest improvement in sales for the full year driven by the contribution from improved ranges and lower prices, as well as from better selling space Operating profit decline is likely to slow in 2018 to around -5% which also recognizes some ongoing improvements from the international operations.
“We expect free cash flow to weaken due to the cash component of the restructuring costs and leverage to increase modestly towards 3.6x by 2018, which is within the 4.0x level supporting M&S’s Baa3 rating.”
Darren Shirley, Shore Capital
"In a relatively succinct Q1 statement, Marks & Spencer (M&S) has confirmed reasonably subdued trading for the 13 weeks to 1st July whilst also confirming that the ‘shape’ of trading has been in line with expectations and that full year guidance remains unchanged. We do not anticipate changing our financial expectations post today’s update, looking for FY2018F EPS of 28.6p. Trading on a FY2018F PER of 11.5x and an EV/EBITDA multiple of 5.6x, with a dividend yield of 5.7% (1.5x covered by EPS and assuming an unchanged pay-out year-on-year), we reiterate our HOLD stance."
Kathleen Brooks, www.cityindex.co.uk
"Steve Rowe, M&S’s CEO, has implemented a 5-year turnaround plan, however, M&S isn’t going anywhere according to these results. Analysts are blaming the fact that Rowe’s plan means that there is no clearance sale at M&S these days, which is hitting sales, also some are questioning whether his plan is not only too expensive, but it doesn’t go far enough since he is only planning to close 53 stores nationwide.
"The economic backdrop is not in M&S’s favour, as consumers get squeezed on the back of rising inflation and weak wage growth, which is eating into spending power. The future also looks fairly bleak. Barclaycard released data this morning showing a 2.5% drop in consumer spending last month, as higher prices meant that consumers concentrated on the essentials."
Eleonora Dani, Stifel
"In Q1 Food performances were slightly below expectations as a result of a deeper than necessary range simplification in Simply Food stores with the intent to reduce waste (e.g., in protein, but we would add in the biscuits department too); This led to Food Q1 sales growth +4.5% (Stifel 6.2%), LFL -0.1% (consensus 0.6%); Management recognised the need for a better balance between product availability and waste reduction (hence the focus on improving ranges); as not unusual in the Food sector, Q1 trade was characterised by a strong competitive environment, and M&S admits they should have gone deeper with Food promos: we now expect more offers in Q2 and possibly for the rest of the year. New stores also played a part in the existing stores' sales cannibalisation (c.0.7%)."
© 2017 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.