View the article online at http://citywire.co.uk/money/article/a602557
Weather-beaten Marks & Spencer to disappoint investors
M&S could deliver a profit warning when it updates the market on first-quarter trade next week.
The past few months may have been a washout for Marks & Spencer (MKS.L), analysts warn ahead of a trading statement next week, and the poor weather could force the company to revise down its full-year profits guidance.
The retailer, which has seen womenswear sales in particular disappoint this year, is set to publish a first-quarter trading update on Tuesday, with its annual general meeting on the same day.
‘We wouldn't be surprised to see gross margin guidance of 0 to +25bp for the full year... revised downward to flat. The market would see that as a profit warning,’ says Marc Zwartsenburg of ING, who nonetheless has stuck with his ‘hold’ rating on the shares.
Freddie George of Seymour Pierce says there are ‘very clearly… better investments elsewhere’. He has downgraded his ‘low end of the range’ forecast for pre-tax profit of £690 million to £665 million. Earnings per share would fall as low to 31.7p under this scenario.
Like most companies, M&S’s share price has dropped sharply since March, having climbed at the start of the year. Over the past 12 months though, the share price is down 8%, as spooked customers spend carefully in the deepening downturn in the UK and elsewhere.
But fortunately, the market has been well briefed for disappointing figures next week, says George, who also has a ‘hold’ rating on the shares. ‘Although it is fashionable to lay into M&S at present, we suspect that there is limited downside to the share price and unless there is a monumental surprise the 300p level is unlikely to be breached. We do have concerns that there is likely to be limited upside to short and medium term earnings.’
Andrew Hughes at UBS notes that the rain will have affected not only fashion sales, but food too. However, the string of sports and royal events in recent months will have offset this. Hughes is among a minority of analysts who rate the shares a ‘buy’ (most say ‘hold’).
The Financial Times last week reported that the departure of Kate Bostock, head of M&S’s non-food business, could be announced at the AGM next week. UBS’s Hughes noted that these reports remained unsubstantiated.
M&S shares are 1.1% lower today at 325p.
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by Gavin Lumsden on Oct 26, 2016 at 14:01