There was a sense of déjà vu about the figures out from Marks and Spencer this week.
Marc Bolland, chief executive of the venerable British retailer, announced that clothing and homewares sales had fallen nearly 7 per cent year-on-year in the last quarter. As retailers often do, he partly blamed the weather – and with women’s summer dresses languishing on the shelves and sales of raincoats soaring, he had some justification. But even the rain could not obscure the impression that, slowly but surely, M&S’s clothes were losing their appeal.
Mr Bolland has taken steps. He has put a different person in charge of the non-food division and has drafted in Belinda Earl to dispense fashion advice a few days a week. Ms Earl livened up Jaeger and, Mr Bolland must be hoping, will ward off charges that M&S cannot compete with trendier rivals such as Next. Investors, however, were unimpressed. The shares fell 3 per cent. Compared with other general retailers in the FTSE, M&S has underperformed by 10 per cent this year.
It is true that M&S faces serious challenges.
Competition has never been so fierce, and rivals both on and off the high street seem to be stealing a march on M&S. John Lewis’ sales leapt over 15 per cent year-on-year last week. And Asos, the online fashion retailer, released extremely healthy sales growth figures on Tuesday.
But sometimes it feels that investors in M&S too easily lose their sense of perspective.
The sales performance was, after all, only the slowest growth for three years, not thirty. And the pattern of a decline in womenswear sales, a sharp share price fall and then a bounceback, is a very familiar one. In July 2008 M&S’s shares lost a quarter of their value in one day after the announcement of a sales drop. And at the time of Sir Philip Green’s putative bid for the company in 2004, there were mutterings about M&S’s decline being terminal.
But the reality is that M&S has great resilience to downturns.
It remains a highly profitable company, with operating profit margins of over 8 per cent. It generates masses of cash – operating cash flow is over £1bn a year. It has to spend a substantial amount of this on its stores, but the cash gives it a great deal of flexibility when things are going badly.
Finally, its balance sheet is in good shape. Debt is relatively low, and servicing ratios are comfortable. And M&S has not indulged in the fancy financial footwork of some of its competitors, who have sold and leased back many of their stores. It’s true that M&S is lumbered with some pretty unattractive real estate – some of which is in hock to its pension fund – but its rental bill is low.
Since Mr Bolland took over in May 2010, M&S shares have fallen 12 per cent. He certainly has a battle on his hands. But rumours of the death of M&S have been greatly exaggerated.
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