Retail bellwether Marks & Spencer (MKS) has escaped the wrath of analyst earnings downgrades after its half-year results weren't as bad as feared. That prompts a relief rally, sending the stock up 3.3% to 503p.


Web chart - M&S - Nov 2013

Interim figures to 28 September from the 129-year old retailer show taxable profits 9% lower at £261.6 million despite a 3.6% hike in group sales to £4.9 billion. General Merchandise, the £7.8 billion cap's clothing arm that has long held back progress, saw like-for-like sales slip 1.5% in a promotional fashion market.


As Shares has outlined previously, chief executive officer Marc Bolland is under pressure to revive M&S' fashion business, particularly its recently underwhelming womenswear offering. M&S launched its new Autumn/Winter ranges in September with an advertising campaign fronted by female celebrities including Tracey Emin and Dame Helen Mirren.


Bolland insists that while only in stores for three weeks of the half-year period, the new collection has been 'been well received by customers, and we have seen some early signs of improvement.' Christmas will be a crucial period in assessing the success of the campaign, which won't have been helped by the mild Autumn weather.


M&S continues to draw succour from the performance of its food business, where like-for-like sales rose 2.5% to outperform the market. Other sources of strength are its international business, where key markets India and China generated strong like-for-like growth and multi-channel, with sales surging 28.5% ahead via M&


While Bolland sees few signs of improving consumer confidence translating into increased retail spend, he says this year is the final one of a period of heavy investment in the retailer's transformation. Lower spend plus operational improvements could see M&S deliver, in its own words, 'a material improvement in free cash flow from 2014/15, and we remain focused on delivering improved shareholder returns.'


Shore Capital, with a 'buy' rating on M&S, expresses relief that M&S has reiterated full-year guidance. Yet well-followed retail analyst Clive Black believes fashion brand issues will take time to resolve. He writes: 'We remain concerned that M&S struggles to break-out in the domestic ladieswear market. What this says to us is that despite a demonstrably better and well received Autumn/Winter season, the challenges that the M&S brand faces to convince many more shoppers to spend more in its stores remains deep-rooted.'


Investec Securities has resumed coverage of M&S with a 'hold' rating and £5 price target. Retail number cruncher Kate Calvert says 'there is not much sparkle in M&S' H1 results with pre-tax profit down 9% to £262 million. While Food continues to perform, the much awaited Womenswear Autumn/Winter 2013 collection is yet to deliver the hoped-for magic. Admittedly, the weather may not have helped and all-important Christmas, against weak comps, is yet to come.'

Issue Date: 05 Nov 2013