Marks & Spencer (LSE: MKS) may not be in as much trouble as Tesco, but it is not doing well. Last week’s third-quarter trading statement revealed that the business is really struggling to make headway.
For some time, the story at M&S has been about food sales doing well, and clothing doing badly. Little has changed.
The clothing business has had a shocking last three months, with like-for-like sales down by more than 5%. Worse than that, the general merchandise business had problems with distribution, and customers had to wait too long for their orders to be delivered. That won’t help future sales growth.
Meanwhile, despite beating the wider market, food sales were broadly the same as last year. So where does M&S go from here? My guess is not very far.
A tight lid on costs may help the company meet short-term City profit forecasts, but it’s hard to see how M&S will grow. It just can’t seem to connect with clothing customers and is being comprehensively outsold by rival Next.
Its food may be very nice, but this is not a good market to be in just now (for the reasons noted in my Tesco article). If the company is just standing still, then a price/earnings ratio of 13.5 times looks expensive. A dividend yield of 4% is all right, but without growth it’s not that appetising.
Verdict: avoid