Analysts split on M&S as profits drop to 2009 lows

(Source: Reuters)

Retailer Marks & Spencer has announced a second straight annual profit fall as profit before tax dropped from £658m to £564.3m for the 52 weeks ended 30 March (release).

Marc Bolland, chief executive, said:

In a challenging market, M&S sales grew by 1.3%. Three of the four parts of the business made strong progress. We are working hard to get the General Merchandise performance back on track. We have already made progress in our operational execution, and our new Autumn/Winter ranges have received a positive reaction. We are very pleased with Food performance which benefitted from our continued focus on delivering innovation, and unrivalled quality and provenance. Our International operations performed well in key markets and our Multi-channel business delivered strong growth.

What the analysts say

Shore Capital's Clive Black (Buy):

We have extensively covered the trading dynamics of M&S over the course of the last year or so whereby the performance of its UK General Merchandising (‘GM’) business has been especially poor, so losing considerable market share and pressurising domestic margins. Management has, of course, been alive to the need for change and under GM Director, John Dixon, the forthcoming Autumn/Winter (‘A/W’) range takes on a new importance.

Beyond GM we are much more content with M&S’ performance. Indeed, we believe that considerable progress has been made in both the nature and performance of the group.

Investec's Bethany Hocking (Sell):

Remain Sellers, forecasts and target price under review. We were impressed with a renewed (and long overdue in our view) focus on product quality at the clothing event last week and the new team came across well. Nevertheless, successful execution is far from guaranteed. We view the current sector rating as overvaluing the shares given the significant operational risks that remain.

Peel Hunt's John Stevenson (Hold):

After two major investor events, today’s results add little new other than guidance. With double running costs of £30m for distribution changes, we downgrade our 2014E PBT forecast to c£675m. After a strong statement of intent at last week’s autumn/winter launch, we expect the shares to retain investor support ahead of further trading evidence.

Capital MSL's Jean Roche (Buy):

Today's results are unlikely to encourage consensus FY2014E upgrades once the guided IAS 19 adjustment is absorbed but without this there would be a c.2.4% adjustment upwards: our upper-end FY2014E PBT forecast of £734m is likely to come down to c. £715m-£720m but a lower guided tax rate means that our FY2014E EPS estimate is unlikely to change. Lower capex guidance for 2013 14 onwards is likely to be well received with management clearly stating that uses of cash will be re-evaluated, which could mean improved dividends, share buybacks or even a one-off payout. Our Price Target indicates 10.8% TSR and we remain Buyers.