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Marks & Spencer Q3 Results: What The Analysts Said

Published on Jan 11 2018 1:48 PM in Retail tagged: UK / Marks & Spencer / What The Analysts Said

Marks & Spencer Q3 Results: What The Analysts Said

Marks & Spencer has posted its third quarter results, with the retailer reporting a 1.4% decline in like-for-like sales in its home market, citing 'ongoing trading pressures' and consumers tightening their purse strings.

Steve Rowe, the retailer's chief executive, has earmarked further changes over the coming year to "get the business back on track in the year ahead."

Here's how the analysts saw its quarterly performance:

Scott Ransley, Stifel

"The promotional environment in food remains significant. M&S struggles on KVIs (Known Value Items) where its product differentiation cannot justify a price premium. While it benchmarks against the Big 4 supermarkets, one analyst asked whether the discounters may also be having an impact. Online sales growth of just 3% looks weak relative to the market.

"M&S has a lot to do to narrow the gap in online retailing. Major initiatives sound at least 18m away. CEO Steve Rowe was relatively downbeat on the consumer outlook. He sees the environment as 'fragile and volatile' with disposable incomes under pressure from inflation."

Ernesto Bisagno, Moody's

"M&S gave a mixed bag of results today, with a strong Christmas period partially offsetting weak clothing sales in October and ongoing pressure on the food business. Management reiterated the full-year guidance. We anticipate some earnings stabilization and expect a single-to-mid digit decline in operating profit over 2018-19."

"Despite the lower earnings and 2018 material restructuring cash costs, we expect free cash flow after shareholder distributions to remain positive at around £150-£200 million this year, and at £200-£250 million in 2019. The company's metrics are well positioned in the Baa3 rating category but an upgrade is unlikely in the near term considering the negative gross margin trend in Food and negative Clothing sales."

Barclays European Food Retail Equity Research

"M&S describes 3Q as a mixed quarter, with a weak clothing market in October and Food still underperforming. However, Christmas trading was better in both businesses and this helped improve the overall quarterly result. [...] Key numbers: Food LFL: -0.4% (vs Barclays and Bloomberg-collated consensus -1.0%). Clothing & Home LFL: -2.8% (vs Barclays and consensus -3.0%). Overall LFL sales in the UK (Clothing and Food) fell by -1.4% versus our estimate of -1.8%."

Clive Black, Shore Capital

Marks & Spencer ('M&S') has revealed its trading for the 13 weeks to the 30th December 2017, the group's Q3. With full-year guidance unchanged, we leave our FY2018 PTP estimate of £593m (company consensus: £578m) unchanged, EPS of 28.6p. Marks & Spencer is a business that has undergone, and continues to undergo, considerable change and with this in mind despite trading on an undemanding FY2018F PER of 10.7x and an EV/EBITDA multiple of 5.2x we reiterate our HOLD recommendation, noting the downside support from a forecast dividend yield of 6.1% (1.6x covered by EPS, 1.8x covered by post capex free cash flow).

Fiona Cincotta,

"Marks and Spencer has had a tough third quarter, though it has performed well enough to avoid the market savaging experienced by Debenhams last week. The fall in like-for-like sales in both the clothing and food divisions was broadly in line with market expectations. And most of the damage appeared to occur in October, indicating the group at least had a half-decent Christmas trading period.

"A decision to hold off on discounting would have proven fortuitous when the cold weather bit later in the reporting period. Overall, these results should give chief executive Steve Rowe a little more breathing space to enact his turnaround strategy in what remains a challenging market for traditional retailers."

Catherine Shuttleworth, Savvy

“Ongoing tough times for M&S in terms of clothing and food sales. We think that the M&S food shopper has in part been lured away to the discounters this Christmas with their enhanced premium ranges and outstanding wines and spirits offers. It’s clearly encouraging that profit expectations are on track, Archie Norman now has to dole out some tough medicine to stem the decline.”

Connor Campbell, SpreadEx

"The perpetually unfashionable clothing and home business was, as ever, the headline casualty, posting a 2.8% plunge in like-for-like sales across the 13 weeks to the end of December – hardly a surprise given the division’s head, Jo Jenkins, shockingly jumped ship in October.

"But, but, but, the clothing department is always a bit rubbish; how about the food business, ostensibly the company’s shining star which, on paper, should have received a Christmas boost? Well once again the division under-performed expectations, suffering a 0.4% decline in comparable sales at the same time as its major supermarket rivals all saw some level of growth. Marks & Spencer just can’t shake its image as a sector dinosaur, with these results nipping a nascent rise in the bud as it fell 2.5% after the bell."

© 2018 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.

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