This was a mixed half-year result from Marks & Spencer (MKS) - despite the hugely positive reaction in the share price, which leapt 9 per cent in morning trading. Traders were no doubt encouraged by the 2 per cent increase in underlying pre-tax profit and news that the retailer beat gross margin expectations in the embattled general merchandise (GM) division.
The GM margin rose 150 basis points, thanks to significant sourcing gains and lower promotional activity. That prompted management to upgrade its full-year guidance. It now thinks GM margins will rise by 150-200 basis points this year, potentially double the 100 previously indicated.
However, the sales figures were extremely disappointing. Revenue in GM fell 2.3 per cent, or 2.9 per cent on a like-for-like (LFL) basis. Clothing sales across the business slumped 1.6 per cent, with a 2.2 per cent LFL dip, blamed on the mild weather. In food, sales rose 3.6 per cent, but LFL sales only managed a 1 per cent increase. Overseas revenue was hit by currency headwinds, leaving profit flat. But the website was arguably the worst performer. Still reeling from a major overhaul, sales fell 6.3 per cent - although the decline did at least moderate over the period.
Meanwhile, the increase in underlying pre-tax profit can be attributed entirely to lower borrowing costs, as net debt fell. Underlying operating profit actually slipped 2.7 per cent to £330m as operating costs rose faster than sales.
Management claimed that the company's products improved, with better-quality clothes and store presentation. In food, Mr Bolland said M&S would not be joining the supermarket "race to the bottom" on price, instead focusing on quality, while accelerating the store opening programme.
Broker Peel Hunt expects pre-tax profit of £660m for the full year, giving EPS of 33p - compared with £623m and 35p in 2014.
MARKS & SPENCER (MKS) | ||||
---|---|---|---|---|
ORD PRICE: | 439p | MARKET VALUE: | £7.2bn | |
TOUCH: | 438-439p | 12-MONTH HIGH: | 515p | LOW: 381p |
DIVIDEND YIELD: | 3.9% | PE RATIO: | 14 | |
NET ASSET VALUE: | 171p* | NET DEBT: | 92% |
Half-year to 27 Sep | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
---|---|---|---|---|
2013 | 4.88 | 280.6 | 15.5 | 6.2 |
2014 | 4.90 | 279.4 | 14.0 | 6.4 |
% change | - | - | -10 | +3 |
Ex-div: 13 Nov Payment: 9 Jan *Includes intangible assets of £823.2m, or 50p a share |