Clothes lines fail to make an impact
More here: Kipper Williams on Marks & Spencer
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Clothes lines fail to make an impact
More here: Kipper Williams on Marks & Spencer
Investment analysts say M&S is increasingly vulnerable to a bid after a series of bleak sales updates
Marks & Spencer was the biggest riser in the FTSE 100, after it was reported to be on the shopping list of a US private equity firm.
CVC Capital Partners, which tried to buy Sainsbury’s in 2007, had explored a bid for the struggling high-street chain, according to the report by Bloomberg, although its sources added that the buyout firm was not actively pursuing a bid at present. Both CVC and M&S declined to comment but the speculation sent the shares up nearly 4% to 370.5p, with M&S the most actively traded stock in the index.
Analysts say M&S is increasingly vulnerable to a bid after a string of disappointing sales updates. Some investors are beginning to lose faith in chief executive Marc Bolland’s ability to revive the 128-year-old chain. The retailer reported its first decline in profits for three years in May, as even its older and more affluent shoppers felt the chill of recession in Britain. That setback was followed by a double whammy in July when dire first-quarter sales were compounded by the departure of long-serving clothing supremo Kate Bostock, by “mutual consent”. Like-for-like sales of clothing and homewares had tumbled nearly 7% – the worst performance in at least three years.
At its annual results, Bolland rowed back on a three-year plan to boost UK group sales by up to £2.5bn, and put the brakes on plans to open more stores. The UK’s biggest clothing retailer also revealed its share of the key womenswear market had dropped from 10.9% to 10.4%. Analysts said M&S clothing brands were not distinct enough – it has since hired Belinda Earl, former chief executive of Debenhams, who is credited with establishing the Designers at Debenhams ranges.
The last time M&S was in play was in 2004, when Topshop owner Sir Philip Green made a second attempt to buy the high-street institution. At that time, Sir Stuart Rose was parachuted in to defend the business, and Green’s's £9.1bn offer ultimately failed to garner sufficient support from shareholders.
Last month, Paul Mumford, a fund manager at Cavendish Asset Management, said M&S was “vulnerable” to a takeover bid, pointing to the depressed share price coupled with the attractiveness of the brand and its food business.
Any buyer would need deep pockets, however, as it remains hard to raise the debt required to underpin any deal: M&S has a market value of £5.7bn and debts of nearly £2bn as well as substantial pension liabilities, so any buyer would have to write a cheque for more than £7bn.
M&S’s share price dropped 15% between the start of April and mid-July but has since been ticking up as rumours circulate about its future.
Any bidder would face a formidable opponent in Robert Swannell: the M&S chairman has a 30-year career in investment banking behind him.
CVC was forced to abandon its £10bn offer for Sainsbury’s after members of the founding family as well as its pension trustees opposed plans to sell property assets. One CVC insider was keen to distance the company from the report linking it to M&S, stating: “If I were you, I would not spend too much time on this.”
Chief executive Marc Bolland says Marks & Spencer could have sold three times as many popular cardigans and jumpers were it not for ‘temporary’ buying issue
Marks & Spencer has admitted it scored an embarrassing own goal after buying blunders left it with major shortages of coats, knitwear, printed blouses and even ballet pumps.
Britain’s biggest clothing retailer said it had not only been caught short by the cold snap in February which sparked a late run on winter coats and woollens but had failed to buy enough stock in hot trends such as tribal print fabrics and coloured chinos. Its chief executive, Marc Bolland, said M&S sold 100,000 cardigans and jumpers from its core M&S Woman collection in the fourth quarter – but could have sold three times that number. “That was a miss,” he said, putting the problem down to a “temporary” buying issue. He also gave the example of the women’s ballet pumps where the retailer could have sold “double” the quantity.
The stock shortages meant like-for-like clothing and homewares sales at M&S fell 2.8% in the fourth quarter, missing City forecasts. While sales of lingerie and childrenswear held up, the patchy performance of its important women’s division depressed the retailer’s overall growth in the fourth quarter, with its shares the second biggest faller in the FTSE 100, closing down more than 2% at 358.7p.
Bolland also blamed the deflationary impact of stocking more low priced clothing lines, but insisted the weakness was not down to having the wrong fashions in its shops – just not enough stock of the right ones: “We were bang on trend,” he said.
With much of M&S’s knitwear made in Asia, the retailer was unable to repeat orders fast enough to meet the demand sparked by the cold weather. The length of its lead times meant it missed the opportunity to sell another 25,000 coats and jackets, he said. “There is no supply chain issue but we were too tight on bestselling lines,” said Bolland adding that the fashion team headed by clothing supremo Kate Bostock “had all my confidence” but would nonetheless be strengthened. There have been recent personnel changes including last month’s departure of Bostock’s number two Andrew Skinner who has been at M&S 28 years and was responsible for stock management.
Staff who plan the clothing ranges will also work more closely with its marketers: adverts featuring models such as Rosie Huntington-Whiteley caught shoppers imagination but again the retailer misfired by underestimating demand for the products featured.
Investec analyst Bethany Hocking said the trading figures were “weak” and that cost-cutting seemed to have “saved the day”. Despite the sales short fall M&S expects to meet City’s expectations of annual profits of £694m in the year to 31 March. Hocking, however, is reviewing her profit forecasts for the coming year with other analysts expected to do the £740m figure previously pencilled in by analysts expected to fall. “The only good news” she added was the decision to shave £100m from its costly stores refurbishment programme.
M&S will now plough £500m rather than the £600m originally envisaged into the three year refit of its stores that it already under way. It has refurbished around 70 of its 731 stores to date with the new look well received by shoppers, Bolland said.
M&S’s food business proved less accident prone with like-for-like sales ahead 1% in the 13 weeks to 31 March. Bolland said customers had responded to its promotions, which included a Valentine’s Day special ‘dine in for £20′ offer. Taken together, food and general merchandise like-for-like sales finished down 0.7%.
Internet sales jumped nearly 23% as it made changes to its website and added a discount M&S Outlet section.
There was also a chequered performance by its international business. Bolland said M&S was enjoying “double-digit” growth in India and China but sales in the bailed out economies of Ireland and Greece had been hit as consumers cut back.
M&S indicated it expected operating costs to rise by 3-5% in the coming financial year but that the increase would be counteracted by yet more internal cost-saving initiatives, with more details expected at next month’s annual results.
While many UK retailers are struggling as consumers grapple with higher living costs and worries about job security and a stagnant housing market, M&S has fared better thanks to its older and more affluent customers. Some 21m shoppers visit its stores every week and Bolland said a recent poll of its shoppers suggested a small uptick in confidence, with the retailer optimistic summer events such as Queen Elizabeth’s Diamond Jubilee and the London Olympics will provide a fillip for sales. The retailer is stocking special party food and paraphernalia such as bunting for family events and street parties – as highlighted in the current advertising campaign featuring celebrities such as Dannii Minogue Jamie Redknapp, frolicking at a garden party hosted by Twiggy.