M&S (MKS) & WH Smith (SMWH): Should you buy these 2 FTSE retail stocks?

Highlights

• Marks and Spencer is considering the closure of select stores in France after the imposition of Brexit border controls and byzantine regulations that caused supply chain issues.
• Causeway Capital Management increased its stake in WH Smith as the investor expects a recovery in the international travel scenario to aid the retailer’s recovery impacted by the COVID-19 pandemic.

Supply chain issues, Brexit and the COVID-19 pandemic, have all imposed uncertainty in the UK’s retail scenario. Brexit and related regulations have created supply chain issues, caused delays in stock reaching market shelves, which is resulting in wastage in the case of perishables. On the other hand, the onset of the COVID-19 pandemic resulted in the closure of several retail outlets and job cuts. As retailers recover from the impact of the COVID-19 crisis due to the reopening of the economy and increasing vaccination rates, fears of the impact of trade restrictions with the EU due to Brexit remain to weigh down the retail sector.

Here we take a detailed look at 2 FTSE 250 listed retail stocks and explore the investment prospect in these companies.

Marks and Spencer Group Plc (LON: MKS)

Marks and Spencer is an international high-street retailer based in the UK. The shares of the company closed at GBX 187.15, up by 1.15% on Friday 10 September 2021. M&S shares gave a return of 83.75% in the last one year to shareholders, and its market cap stood at £3,613.69 million.

The retailer is considering the closure of some of its stores in France after the imposition of Brexit border controls and byzantine regulations resulting in supply chain issues. Supply chain issues have been causing prolonged delays, leading to huge volumes of food getting spoiled.

For the 19-week period ended 14 August 2021, M&S group revenue grew by 29.1% year-on-year. The company’s revenue in the food business rose by 10.8% year-on-year, clothing & home by 92.2% year-on-year, and international by 39.7%. It estimates adjusted profit before tax for the full year to be more than the previous guidance of £300 million to £350 million.

WH Smith Plc (LON: SMWH)

WH Smith is UK-based travel and high-street retailer. The shares of the company ended at GBX 1,507.00, up slightly by 0.50% on Friday, 10 September 2021. WH Smith shares gave a return of 33.96% in the last one year to shareholders, and its market cap stood at £1,962.98 million.

Recently, WH Smith’s largest shareholder Causeway Capital Management, increased its stake in the company. The investor is expecting the recovery of the international travel scenario to lower the COVID-19 pandemic’s impact on the company’s business. Causeway Capital Management currently owns 9% stake in the retail business after purchasing shares driven by the recent profit alert. 

As of 28 August 2021, WH Smith’s cash on deposit stood at £107 million, and the revolving credit facility worth £250 million remains undrawn.

Bottom line

As the retail sector recovers from the impact of the COVID-19 crisis, restrictions imposed by Brexit, such as changes in trade regulations with the EU and worker shortage, is expected to hit not only the country’s retail sector but also the overall economic growth.