Don't get too hung up on the fourth-quarter sales performance at Marks and Spencer (MKS), that's the message from chief executive Steve Rowe. The removal of promotional sales meant it was "inevitable" that clothing and home sales would contract in the final period, he says, but it's more important to look at market share gains. Don't worry either about the significant slump in annual profits in the year through to April. Mr Rowe said this was down to a serious restructuring effort at the retailer, which resulted in around £437m in exceptional items - more than double the amount booked last year.
But costs are going to prove a thorn in M&S's side this year too, as inflationary pressure compresses group margins. During the period, clothing and home gross margins rose by 105 basis points thanks to a 2.7 per cent increase in full-price sales and a stabilisation in market share in the fourth quarter. Reduced discounting may have dented the top line - like-for-like clothing and home sales fell 3.4 per cent - but it did lead to better sell-through rates and added around five basis points to margins. However, the group could struggle to maintain existing rates in the year through to April 2018. The group will do its best to mitigate currency headwinds via better buying practices and fewer discounts, but it admits that maintaining competitive prices means that gross margins could conceivably rise or fall by 25 basis points.
Inflationary pressure meant gross margins on the food side fell too - more so than the group had expected. Margins are likely to continue to feel the squeeze as a result of weaker sterling, and could contract by as much as 50 basis points. That said, the opening of 68 new food outlets during the period allowed for continuous top-line growth, up 4.2 per cent last year on an absolute basis.
Analysts at Peel Hunt expect adjusted pre-tax profits of £635m for the year ending March 2018, giving EPS of 30.6p, from £614m and 30.2p in FY2017.
MARKS AND SPENCER (MKS) | ||||
|---|---|---|---|---|
| ORD PRICE: | 396.9p | MARKET VALUE: | £6.45bn | |
| TOUCH: | 396.8-397.2p | 12-MONTH HIGH: | 442p | LOW: 255p |
| DIVIDEND YIELD: | 4.7% | PE RATIO: | 55 | |
| NET ASSET VALUE: | 194p* | NET DEBT: | 61% | |
| Year to 1 April | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 10.00 | 547 | 28.3 | 17.0 |
| 2014 | 10.30 | 580 | 32.5 | 17.0 |
| 2015 | 10.30 | 600 | 29.7 | 18.0 |
| 2016 | 10.56 | 489 | 24.9 | 18.7 |
| 2017 | 10.62 | 176 | 7.2 | 18.7 |
| % change | +1 | -64 | -71 | - |
Ex-div: 1 Jun Payment: 14 Jul *Includes intangible assets of £709m, or 44p a share | ||||
