Stock of the day 01/04/2015 – Marks & Spencer Group PLC

Marks & Spencer continues to be a company of two halves, with disparate performances between food and clothing.

Yet the positives appear to outweigh the negatives as the stock sees strong market growth even if certain aspects of the business are in dire need of an overhaul ahead of its Q4 trading update on Thursday.

Despite the plethora of problems M&S has had of late, its stock is just shy of £1 in growth from its 2014 starting price of £4.55. It closed that year at £4.78 before falling to £4.45 in the first week of January following a Q3 2014/15 interim statement that highlighted some serious failings over the Christmas period. Yet it hit a high of £5.48 last week, and even though the stock has slipped since then is still trading at a healthy £5.35 per share.



So what is causing this continual faith in the legendary British brand? Expectations point to continued strength in M&S Food, the company’s lifeline during some of its darker moments in the past few years. There is also the fact that consumer confidence just hit a 12 year high in March, suggesting a positive backdrop for the retail in the first quarter of 2015.

Yet this still doesn’t change the fact that come Thursday, Marks & Spencer will be looking to reverse a staggering 14(!!!) consecutive quarters of sales declines in general merchandise (i.e. M&S’ once formidable clothing sector), with the latest update in January seeing a 5.8% drop in this area.

M&S desperately needs to spark life into its clothing division, as there is only so long the company can survive on food sales growth. In January the company’s chief Marc Bolland blamed the warm autumn weather for the most recent decline (something that incidentally didn’t harm Next anywhere near as much as it did M&S), with the Christmas-distribution-disaster merely exacerbating the issue. However, with no major gaffs, or acts of God, to disrupt the 4 months leading to March, forecasts are suggesting flat underlying sales in general merchandise. Not parade worthy, for sure, but enough progress to apparently please investors.

With the company also seeing dramatic cuts in cost following the help of Mark and Neal Lindsay to assess the efficiency of its outsourcing structure, things might be starting to look positive for the company, with analysts giving a consensus rating of ‘hold’ and an average target price of £4.67.