M&S shares drop as it ditches stores

Added 8th November 2016

Marks & Spencer shares dipped by 1.83% to 342.6p as it announced it would be closing 30 stores in the UK and cease trading in ten overseas markets.

M&S shares drop as it ditches stores

CEO Steve Rowe, who stepped into the role in April, admitted in Tuesday’s interim update that “these are tough decisions, but vital to building a future M&S that is simpler, more relevant, multi-channel and focused on delivering sustainable returns."

While Rowe said the group was seeing ‘early signs’ of recovery in its clothing and home division, total sales throughout the period declined 5.9%, prompting the purge of more stores in the UK.

Under Rowe’s direction, the FTSE 100 outfitter has laid out a five-year plan to revamp its retail estate, which it estimates will cost £50m per annum for the first three years. The plan will see the repositioning of 25% of its in-store clothing and home space and the continued rollout of its Simply Food stores.

Rowe’s new vision for the business also involves scrapping many of its wholly-owned markets in favour of its more profitable franchise model. While M&S will continue to operate owned businesses in the Republic of Ireland, Hong Kong and Czech Republic, it said it will pull 53 stores in ten markets, including China and France, which have underperformed in recent years. It is estimated the proposed closures will affect close to 2,100 employees.  

The Share Centre’s investment research analyst Ian Forrest was positive about M&S’ renewed focus on food, predicting the move should improve food sales, which were down 0.9% on a like-for-like basis over the first half of the year.

“There was a lot of news for the market to absorb today but the decision to reduce the clothing and home part of the business makes sense while it assesses the results of the changes it is making in that part of the business,” Forrest said.

However, Forrest confirmed the Share Centre’s recommendation is still under review as it considers the impact of Rowe’s plan. “The dividend remains attractive and the food business is resilient, but we will have to see if the encouraging early results of the changes in clothing and home are sustained,” he asserted.

Tuesday’s trading update underscored to many commentators that M&S still has a long road ahead. The British retailer’s underlying profits slumped 19% to £231.3m in the 26 weeks to 1 October, though group revenue edged up 0.9% to £4.99bn. 

Retail Vision director John Ibbotson also had doubts about M&S’ ability to revive its clothing brand, calling its “humiliating withdrawal from ten overseas markets … nothing less than a Dunkirk moment for an iconic British brand.”

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