There was every danger that Marc Bolland's long-awaited plans for the next phase of Marks and Spencer's (M&S) future would underwhelm. What ground could he possibly cover that former chief executive Stuart Rose hadn't ticked off with his Project 2020 plan, itself launched just over a year ago? And when Mr Bolland introduced his strategy as "evolution not revolution", it seemed unlikely that we'd be hearing anything that could materially alter the outlook for the UK retail bellwether.
In fact, Mr Bolland somewhat undersold what looks to be an extremely thorough review of the group, encompassing staff, customers and analysts' observations, and a plan that has the potential to add between £1.5bn and £2.5bn to sales over the next three years. That's a level of improvement which could lift pre-tax profits back through the magic £1bn figure, and one which according to Mr Bolland can be fully achieved through "self-help and things we have to do ourselves". Only an unexpected economic turn for the worse, he said, could derail the continuing recovery.
At its core, Mr Bolland's plan simply accelerates the initiatives outlined in Project 2020 by five years, as well as offering an additional £50m-worth of savings on its IT and logistics components. And the fact that the plan builds on existing strengths means it doesn't require a huge leap of faith to believe that it's deliverable. Not least of these, pointed out Mr Bolland, is the strength of the M&S brands and sub-brands, and the quality and innovation underpinning its products. The trick, he said, is to make sure these assets are exploited better, that stores are made easier to shop and packaging improved, and that space is better utilised. In food, for example, the number of third-party brands offered will be pared back to the top 100, but the number of own-lines will grow from 7,000 to 8,000. Its in-store cafes will be used to showcase new products, and cross-selling is to be improved across the business.
While Mr Bolland does plan some space increases, improving the multi-channel offering will be crucial - although he said he couldn't find a way to deliver online food profitably. "We're not going to build hundreds of stores where the internet can play a big role," said Mr Bolland, adding that M&S will transition onto a newly developed e-commerce platform over the next three years, additionally providing scope to use the web to expand its international presence. He also plans to further develop the retailer's physical presence overseas through the use of joint-venture partners or franchisees, a low-cost, low-risk approach it already operates with partner Reliance in India. International already accounts for 10 per cent of sales, but Mr Bolland hopes to double to as much as £1bn by 2013-14, a similar growth profile planned for its online business.
Implementing the plan will cost an additional £850-£900m over three years, which will take total annual capital expenditure up to £900m. However, Mr Bolland said this would be fully funded from cash flows, and wouldn't impinge upon the group's ability to offer a progressive dividend policy.
Broker Altium Securities expects full-year pre-tax profits of £718m and EPS of 32.6p (from £633m and 25.6p in the year to March 2010), rising to £828m and 37.6p, respectively, the following year.
| ORD PRICE: | 408p | MARKET VALUE: | £6.13bn | |
| TOUCH: | 407-408p | 12-MONTH HIGH: | 431p | LOW: 322p |
| DIVIDEND YIELD: | 3.8% | PE RATIO: | 11 | |
| NET ASSET VALUE: | 146p* | NET DEBT: | 99% | |
| Half-year to 2 Oct | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 4.34 | 307 | 14.3 | 5.5 |
| 2010 | 4.57 | 349 | 16.6 | 6.2 |
| % change | +5 | +14 | +16 | +13 |
Ex-div: 17 Nov Payment: 14 Jan *Includes intangible assets of £484m, or 32p a share | ||||
