Equity prospects

MARKS & SPENCER

James Godrich, Research Assistant

Price£3.35

52 week high-low£5.08–£2.55

Net yield7.04%

Hist / pros per21.4–11.3

Equity market cap£5,356m

Marks and Spencer Group (M&S) is a well-known retailer dividing its stores into General Merchandise and Food or sometimes Simply Food. This divides not only its stores but also its profitability and growth where Food has been the crown jewel for M&S versus declining General Merchandise revenues.

Against this background the new CEO, Steve Rowe, has set about a group-wide turnaround strategy in two parts. The first of these targeted growth in revenue and margins in their clothing and homeware division. Management chose to lower prices with less reliance upon sales, offer 10% fewer clothing lines and increase availability; an approach which initially appears to be bearing fruit.

The second and more recent group-wide strategy update was three fold and includes exiting loss making international stores, at a cash cost of £150-200m, reducing clothing and homeware space by 10%, at a cost of £50m per year for three years, rising to £100m in years four and five, and simplifying head office operations.

Directionally the strategy seems sensible but there remains market wariness over the cost, timing and risk of its successful implementation.

John Royden is a beneficial owner of Marks & Spencer.

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