You may be surprised to hear it’s been a good year for Marks & Spencer (LSE: MKS).
Since the beginning of the year, shares of the much-maligned retailer are up nearly 21%, leaps and bounds ahead of the FTSE 100’s 9% gain in the same six months.
Surprised? Me, too.
Maybe it’s a case that poor old Marks & Spencer’s had been beaten down so far that any bit of good news was enough to send shares up.
So how did we get here?
A quick recap
For the 12 months that ended in March 2013, Marks & Spencer’s numbers were mixed at best.
Total sales were up just 1.3% — at a still respectable £10 billion — but like-for-like sales, which is the measure of sales from stores that have been open a year, was actually down by 1%.
With the exception of Marks & Spencer Food, which continues to perform well but is not without competition (think Sainsbury, Tesco, Morrisons), people are going elsewhere for their clothes and home goods (think Primark, Next and the high street in general).
Two other positive areas for Marks & Spencer’s were international sales, which is only 10% of their business but global sales were up 4.5% in the last year; and online sales, which jumped 16.6% year over year largely due to the launch of free next day store collection.
Investors chasing the Marks & Spencer’s dividend saw it held flat at 0.17p per share.
2/3 through the turnaround
Two years ago Marc Bolland, chief executive of Marks & Spencer, outlined his vision of what a three-year turnaround would take.
First up is focus on the UK. This means refreshing and redesigning the bricks-and-mortar stores to maximise sales per square foot and attract more foot traffic.
Next up is a commitment to improve as a multi-channel retailer. Marks & Spencer’s says it wants to meet people on their own terms, and that means meeting them online. Online sales grew 16.6% last year and now represent 13% of all general merchandise sales.
The launch of the Shop Your Way initiative — where buyers can get free next day in-store pickup — is being dubbed an early success. More than 44% of online orders are now collected in stores.
The final piece of the turnaround is happening outside the UK, with international growth. MKS operates 418 stores in 51 territories, though sales derived outside the UK still represent a small part of the overall business.
What now?
Looking at the company’s progress, Bolland can call easily call Food a win and the development of online retail can also be dubbed a success. However, with what is expected to be the eighth consecutive decline in general merchandise sales, Marks & Spencer’s turnaround would appear far from complete.
Of course, you might not know that if you compare Marks & Spencer’s shares to some of its retailing peers, as it seems the market is fairly optimistic on the company’s turnaround efforts.
| Company | Forward P/E |
|---|---|
|
Marks & Spencer |
14 |
| Next | 15 |
| Debenhams | 10 |
| Tesco | 10 |
| Sainsbury’s | 12 |
With this type of multiple, the shares could be in for some pain if the company’s quarterly update on 9 July fails to wow investors.
A quarter is only a snapshot in time, of course, but I will be focusing on the progress Bolland is making here in the UK.
Yes, the ability to grow internationally is a sign of progress, but I’d like to see more indications that Marks & Spencer’s is able to attract people to its brand, and that means getting people in the stores for more than just lunch on-the-go.
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> Jill owns shares in Tesco. The Motley Fool owns shares in Debenhams and Tesco.
