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Marks & Spencer (MKS) shares are left holding the blue-chip wooden spoon this morning after disappointing full year results missed consensus, adding to the retailer’s list of woes. A near 20% decline in profits after booking £200m in charges (International, UK store review, IT) and more margin-hampering short-term investment in pricing and employees required to deliver a successful turnaround are weighing on sentiment. Clothing and General Merchandise performance remains ‘unsatisfactory’ as difficult trading conditions persist which leaves everything on the shoulders of a stronger performing but much lower-margin Food segment.
A troubled retail division has become a major issue as the core customer base ages and it likely struggles to entice a younger demographic more likely to buy online. The international division remains depressed and the outlook for General Merchandise margins has turned more guarded. Not a good message combo this early in the year, especially with a delay in strategy review until the Autumn suggesting things being much tougher than thought. Shareholders are clearly checking out from 2016 highs preferring to await proof of turnaround before adding them back to the basket. Organic profits growth (pre-exceptionals) of 4% on revenues +2% – suggesting welcome margin growth – and a full year dividend +4% to 18.7p coupled with a 4.6p special are being totally ignored. Who’s next please?
Mike van Dulken, Head of Research, 25 May
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