Despite a gloomy outlook for retail, high street stalwart Marks & Spencer (LSE: MKS)just managed to beat City expectations with its results this morning.
Underlying pre-tax profits came in at £714m for the year to 2 April, versus expectations of £710m, on sales up from £9.5bn to £9.7bn.
The company managed to boost market share in both its clothing and food divisions, helped by increased advertising – advertising costs rose by 16% on the year.
The question is: how will it keep it up? According to new chief executive Mark Bolland (who took over last May), the outlook “remains challenging”. That’s no surprise. Consumers face rising costs and falling real wages. And rising raw material prices are no fun for retailers either.
Bolland’s solution is to experiment with improving the layout of existing stores (something M&S customers have complained about in the past) and tailor the range offered in individual shops depending on the “age and affluence” of the local area. The company is also expanding online and overseas – international sales grew by 6.1% over the last year and now account for more than 10% of total sales.
Our view
The results are solid enough, but it’s hard to get excited about M&S. The company has performed roughly in line with the FTSE 350 general retailers index over the past year. The prospective dividend yield of 4.3% is reasonable, and the forward p/e of 11 is broadly in line with the sector, but given the grim outlook for consumers, and M&S’s mixed history when it comes to international expansion, there are more promising sectors in which to put your money.