FTSE 250 Listed Marks And Spencer Fails To Capitalise On Indications Of Recuperation In Q3

FTSE 250 Listed Marks And Spencer Fails To Capitalise On Indications Of Recuperation In Q3

M&S Business Overview

Marks and Spencer Group Plc (LSE: MKS) is a general retailer based in the United Kingdom that operates globally through more than 1400 stores around the world. The group specialises in the clothing segment but also engages in home products as well as packed foods. The Company sells womenswear, menswear, kids wear, beauty and home products through its 900 plus brick and mortar stores in the United Kingdom and around over 500 stores outside of the United Kingdom, as well as through its virtual presence from its website and mobile application. The company has two major divisions: the United Kingdom, which consists of both its own retail business as well as its franchise operations, domestically, in the United Kingdom itself, and International division, which includes the M&S brand in the Republic of Ireland, other European countries, Asia Pacific and other countries as well. The company has various brick and mortar stores which are engaged in its food business. The company has approximately 30 million-plus customers across the world, mainly targeting the “Young Adult segment” and “Women’s Segment” when it comes to clothing.

M&S Business performance for Q3 FY20

The sales in the United Kingdom surged by 0.2 per cent on a like-for-like basis in the three months period ended December 28, the company witnessed its first quarter of overall sales growth in three years.

(Source: Company’s filings, London Stock Exchange)

The clothing and home business of the company plunged by 1.7 per cent on a like-for-like basis during the period, which was an improvement on the 2.4 per cent fall in the third quarter of the fiscal year 2019. However, clothing and home business performance during the period was poor than the decline of 0.8 per cent as forecasted by other market experts.

The company’s Clothing & Home Online sales were on a slower side; the 1.5 per cent growth was far less than expected. According to the company, this was due to discounts offered in December due to aggressive competition and lower furniture sales at the beginning of the quarter.

In the food segment, the company had surplus stock in certain product lines, which led to food wastage and heavy promotions & discounts. However, food sales for the company surged by 1.4 per cent on a like-for-like basis and were better than the fall of 1.2 per cent plunge witnessed last year and the previously forecasted value. The sales in the food segment have recorded growth in the last two quarters. The company has worked upon its food-related product lines and have discouraged discounts and promotions offered on these products.

The full-year profit guidance remains unchanged for the company and it believes that the gross margins would be lower in comparison with the forecasted values. The market experts sense a negative sentiment to an extent due to issues in the supply chain which are not being addressed for last twenty years. There is a new ray of hope as new heads for clothing businesses are appointed with a new supply chain director appointment in the pipeline.

M&S Business performance for H1 FY20

(Source: Company’s filings, London Stock Exchange)

In November 2019, the company released its half-year results. The food segment sales of the company grew by 0.9 per cent driven by volume on a like-for-like basis. The Gross margin rate dipped slightly, reflecting investment in trusted value. The Clothing & Home segment was down by 5.5 per cent on a Like-for-like basis due to supply chain inefficiencies.

The company’s profit before taxation & adjusting items was down by 17.1 per cent after a weak performance in the sales of Clothing & Home segment in the first half. The company’s profit before taxation was up by 51.5 per cent at £153.5 million in the H1 FY20. This could be attributed to the lower net adjusting items in contrast to the previous year. The company’s net debt plunged by 3.7 per cent to £4.13 billion due to positive cash generation over the past year. During the period, the group declared an interim dividend of 3.9 pence per share.

The sales of the company in October became stronger after changes were made to styles and sizes and availability was improved. But the group suffered in menswear, as it ordered too many small sizes instead of mediums and large sizes in some of its ranges. This was a learning curve for the company as it will be improving on its propositions, where the company can sense recovery in the clothing business despite restructuring. The company was expected to recover in the clothing business after a period of underperformance following half-year results last November.

M&S Stock price performance

(Source: Thomson Reuters) Daily Chart as on Jan-10-20, before the LSE market close

The group’s shares were a year ago downgraded from the FTSE 100 for the first time ever in the history, yet they managed to rally by in excess of a third from their low point in the summer.

Shares in UK retailer Marks and Spencer fell by more than 7 per cent on Thursday (9th January 2020) after results showed it had failed to build on signs of a recovery in its clothing business and high levels of waste hit margins in food sales. The decline reversed some of those gains.

While writing on 10th January 2020, at 11:53 AM Greenwich Mean Time, the market capitalisation of the group was hovering around £3.80 billion, with a dividend yield of 5.66 per cent.

While writing Marks and Spencer’s shares were trading at GBX 194.68 per share; which were up by 0.14 per cent in comparison to the previous day closing price level.

The shares of the Marks and Spencer have struck a low of GBX 161.35 (as on 10th October 2019) and a high of GBX 292.86 (as on 26th February 2019) in the last twelve months.

At the time of writing, the stock's average daily traded volume for 5 days was 11,485,974.20; 30 days- 9,352,527.90 and 90 days – 10,003,867.29. In the last one-month period, Marks and Spencer’s shares have generated a negative return of 6.67 per cent.


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