Asos and M&S downgraded by UBS. Here's why

Some sobering news for UK clothes retailers this morning, as UBS cut its ratings for both Marks and Spencer and Asos from 'buy' to 'neutral'.

M&S is trading in the red, having shed over four per cent to 434p, and is topping the FTSE 100's biggest fallers this morning.

UBS said:

We cut our forecasts for Marks & Spencer (2014 pretax profit cut by three per cent and 2015 by either per cent)… on lower gross margins.

It's lowered its target price for stock from 550p to 475p.

HSBC has cut its price target for the high street store as well - from 550 to 530p. It said:

[It's] moving in the right direction with the right strategy for the long term… but wider sector pressure to prevail short term.

UBS also announced that it's taken Debenhams off its Most Preferred list, saying that gross margins will be pressured in the short term, and the long term raises questions as to whether the department store model can work without resorting to heavy discounting.

For Debenhams, the share price reflects the majority of our concerns but we lower our target price [from 125p] to 100p.

Asos, while being downgraded, has had its target price raised by UBS from 6,000p to 6,200p on the back of recent strong performance.

The investment bank said of the sector more widely:

The clothing retailers look to have pressed the panic button this year as subdued real disposable income, weak footfall and warmer October weather have held back full price sales.

We think that reported like-for-like sales may hold up but the margin investment will be greater than originally expected with the economics of selling more volumes at a lower price not working in the retailers' favour.

But analysts are optimistic that recent macro-economic data is supportive of a reasonably upbeat outlook for next year, saying they remain "positive on the extent and sustainability of the UK recovery".