Marks & Spencer (lon:mks)
Marks And Spencer – Same Old With Added COVID Effects.

Marks & Spencer Financials

ItemCurrent PeriodPrevious Period
Year20192018
Period12 Months12 Months
Revenue£10181m£10377m
Earnings
Adjusted Earnings
EBITDA
Adjusted EBITDA
Statutory Profit£27m£45m
Adjusted Profit
Total Debt
Net Debt£1460m£1500m

Commentary History
Marks & Spencer Share Price
Grade:The Orange Grade - Shares That I Think Show Promise With A Few Caveats.
Title: Marks And Spencer – Same Old With Added COVID Effects.
Company: MKS - Marks & Spencer
Share Price Then: 113p
Author: Ian Smith
Date: Mon 17 Aug 2020
Comments: The 2019-2020 report was released in June covering the year up to 28/Mar/2020, profit before tax were £62m which is almost nothing considering turnover, but it does include £335m of COVID related write offs.

Food revenue was up 1.9% which is pretty much stationary matching inflation, clothing revenue down yet again, this time by 6.2%

Web based sales initially didn’t seem to have taken up some of the stores losses to the same degree as say Ted Baker or Superdry who reported something like a 40% increase while M&S suggesting only a 20% rise. More recently web sales have risen by a similar amount with a 39.2% increase.

This isn’t too surprising as M&S customers aren’t the ones that you think of first when considering the internet, however once introduced it is easy to see how they may stay a web user for commodity products.

What is also possible is that an improved online presence may make the brand more appealing to people who have a negative view of it as a place for fuddy duddies.

During this period MKS acquired half of Ocado, in May 2019 they announced a rights issue to raise £600m as 1 new share for 5 existing shares and priced at 185p which was pretty much an undiscounted price as part of the £750m total price for 50% of Ocado. Only 85% of these shares were taken up by their rights holders leaving 15% for the underwriters to pick up.

At the time I thought it was a terrible idea, a management that knew that they needed to do something but didn’t really know what, so let’s just buy something. Okay that is a bit extreme but asking share-holders for £600m because the business is failing and we want to expand in a new direction, but now the decision has been made.

As I understand it M&S tried delivering from stores but the orders were too small to be profitable, which isn’t surprising and I can see how delivering from a warehouse makes sense and as Ocado would be dropping Waitrose products then there may be some customers that come with the purchase.

I just don’t “get” having food delivered so my assessment of this part of the market will be wrong, or I am right and it is just a craze.

I went to the Ocado web site today and was really surprised by how tedious it was to use, it may be that for a real customer it is easier, but I left the site thinking wow going to the shops is so much easier, added to which there is a minimum order of £40.

Whether online will make the stores even less profitable is hard to know especially as 2020-2021 is going to be a disaster for most high street retailers.

As I understand it womenswear is no better focused.

Overall I am starting to get bored with announcements on how M&S understands what it has got wrong with its clothing range only to see the same problems being repeated again and again. Too much of its menswear is to too close to Primark in quality but sold at M&S prices and too little is of old M&S quality.

7,000 job cuts have just been announced this close to 10% of the work force, But the retailer said operating during the pandemic had showed it could work "more flexibly and productively", with more staff multi-tasking and moving between food, clothing and home departments

Well what does that say about the management? I hadn’t even considered that staff wouldn’t multi-task and move between food, clothing and home departments.

What is very unclear to me is what is going to happen to high street rents, I look at my town centre and see more and more empty retail space and INTU have recently shown that just how overvalued retail property has been.

It may be hard to imagine but retail space has so many different owners that a rental price crash seem possible.

Net debt is either £1.46bn or £4bn depending upon how you see lease liabilities with £300m to repay in 2021 and 2023 and £400m in 2025 and £250m in 2027 and $300 in 2037
Read Count/ID: 106/13169

Buy/No Buy In A Nutshell
NegativesHigh Street Retailer with long term problems in clothing and homeware.
PositivesPossible rent reductions on the high street, JV with Ocado giving a home delivery service.
Initial Review Price107p
Last Review Price107p
Last Review Date21-Aug-2020
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