Why Can't Marks & Spencer Bounce Back?

THE WEEK: Morningstar columnist Rodney Hobson chastises Marks & Spencer for their confusing updates and laments it will be some time before an improvement

Rodney Hobson 2 February, 2018 | 3:49PM

Why can't Marks & Spencer capture the high street?

Directors are admittedly employed to have a command of their businesses rather than the English language but if they cannot communicate sensibly and clearly I doubt if they will get far.

Marks & Spencer (MKS) produced an update on its plans “to better meet the changing needs of customers”. Let’s overlook the ghastly split infinitive and look at how needs of customers will be served better. By closing more branches, apparently, including the first branch I ever set foot in as a child, in Stockport.

Now it may make economic sense if these branches are loss making but in that case why not say so? Suggesting that customers want branches to close reinforces the view that many shoppers share that the Marks leadership has little idea what its customers want, especially in women’s clothing.

M&S repeats it aim to “reposition” 25% of clothing and home space, except it isn’t repositioning so much as closing. This is no substitute for providing the clothing that customers want. Achieve that and you need more, not less space.

Food store openings have been scaled back, at least that is said in plain English. Although expansion is continuing, a scaling back on the best performing part of the business is disappointing.

There is simply no sign that M&S is any nearer to bouncing back. I do not understand why, when Stockport County can lure 4,400 to watch football in Division 6 North, it is not possible to fill a Marks & Spencer store in the town.

The shares have lost about 24% over the past eight months and despite a bit of recovery in December they are on the slide again. Investors should, as M&S would say, consider whether repositioning their M&S shares would better meet the changing needs of their portfolio.

Shares Slump is a Buying Opportunity

I really must be missing something at plastics maker RPC (RPC). Yet again the company has produced a perfectly good update and once again the shares have slumped. On a previous occasion when this happened I bought a modest batch of shares and this week I did the same again.

I know that the overuse of plastic is getting hostile coverage in the newspapers but RPC’s output is at least recyclable and I see no sign of diminished enthusiasm for the stuff, especially among those same newspaper that wrap their weekend editions in it.

Assuming that RPC’s final dividend is increased only modestly – the interim was boosted by 28% – the potential yield for the current financial year to March is about 4%, which is quite attractive for a company that has raised the pay-out for the past 25 years and is growing apace.

Oink Oink!

Vegans look away now, but if you want an example of a cheerful trading update that is solid rather than showy, try pork producer Cranswick (CWK), which confirmed signs from a range of companies that we ate well at Christmas rather than squandering money on unwanted presents.

Trading in the quarter to 31 December was slightly ahead of expectations, with each part of the business doing better than in the previous year and exports were well up. The UK pig price continued to ease during the period, allowing Cranswick to reduce its selling prices.

Construction of a new facility at Bury in Lancashire, is well advanced and will lift capacity by 70% while combining two existing facilities and thus improving efficiency and expanding product ranges. There are also plans for a new poultry facility in Eye, Suffolk, which will double capacity with further room for expansion.

The group extended its banking facility for a further 12 months to November 2022 on existing terms, although net debt is below the level of a year ago.

The dividend total will top 50p in the current financial year to 31 March and while that gives a yield of only about 2% the pay-out is growing quickly and is well covered. Strictly a long- term investment.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Cranswick PLC2,932.00 GBX-1.68-
Marks & Spencer Group PLC297.00 GBX0.95-
RPC Group PLC775.80 GBX-2.29-

About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.