Marks & Spencer Finals

[idpickering]

Financial Summary

· Profit before tax & adjusting items down 5.4% impacted by the decrease in Food gross margin.

· Significant adjusting items of £514.1m including £321.1m for our UK store estate closure programme. Cash costs of transformation remain in line with plan.

· Strong cash generation even after restructuring costs reduced net debt by £107.2m, enabling the maintenance of a full year dividend, unchanged at 18.7p.

· Clothing & Home gross margin up 50 basis points with full price sales level. Revenue down 1.4% due to planned removal of two clearance sales, and unseasonal second half trading conditions.

· Food revenue growth of 3.9% driven by new stores. Gross margin down 140bps, as we continued to absorb input cost inflation.

· UK costs up 1.8% due to costs of new space, inflation and channel shift offset by efficiencies and lower incentive costs.

· International profit before adjusting items more than doubled to £135.2m, as a result of the successful exit of loss-making owned markets and favourable currency effects.

And later;

Dividend

We have announced a final dividend of 11.9p (full year dividend 18.7p, level year-on-year). This will be paid on 13 July 2018 to shareholders on the register of members as at close of business on 1 June 2018, subject to approval of shareholders at the Annual General Meeting, to be held on 10 July 2018.

https://www.investegate.co.uk/marks---3 ... 00119554O/

[Dod101]

I do not hold M & S but these results seem to me to be distinctly unexciting. From the point of view of an occasional customer, I am glad to see that their margins on food sales are down because although good quality in the main, it is expensive.

I see that they make a point of saying they held the dividend so I would assume that it might be cut at some point.

Dod

[csearle]

· Strong cash generation even after restructuring costs reduced net debt by £107.2m, enabling the maintenance of a full year dividend...

I find that slightly interesting. In my rather simplistic view of things strong cash generation alone might be enough to enable maintenance of a full year dividend. But here they speak of it being used to reduce net debt (which I imagine permanently reduces the cost of servicing that loan), and that this in turn is the enabling factor when considering the dividend.

As the maintenance (or better the steady growth) of the dividend is paramount to us I would like to understand this better. Can anyone anyone help me extend my model of what is going on to the least extent such as to explain why MKS would say it the way they did?

Thanks,
Chris

[idpickering]

The results have been well received it seems, as the SP is up 5.7% currently. Not one for me though I'm afraid.

Ian.

[Dod101]

Chris
You have expressed it better than I did. It seems an unusual way of reporting but if you look at the full press release they say at one point 'We intend to maintain the dividend at its current level' which may give some reassurance to those holding these shares.

It sounds as if the plans for a transformation are well underway in a controlled manner although the best laid plans.........and all that.

They also talk of changing the culture. As I often say that is probably the most difficult thing for staff and indeed customers to accept and for such an operation that will not be easy but Archie Norman has got a good record.

Dod

[vrdiver]

Just flicking through the RNS, at one point they blame the "discounters" for falling margins in food.

I'd always placed the M&S Foodhall as competing against the likes of Waitrose, or else being the convenience store of choice for a quick sandwich or motorway stop. Sounded a bit of a poor excuse to me!

VRD

[Arborbridge]

I finally gave up on MKS a couple of months back, when the price fell below my limit of patience at 280p. Well, that just shows me! Looks like another tinkering error at the moment, because since the week after I sold, Marks has established a nice little uptrend, which despite rather downbeat results has continued today.
Too early to say whether I will live to regret, but it's an interesting case.

I heard someone discussing Marks on Radio 4 this morning, and I always come away from these features wondering what on earth a company needs to do to win approval. A few years back it was criticised for having dull colours in clothing. Now there are bright coours and beautiful clothes and it still isn't cutting the mustard. This person also though Marks needed to be more competitive on price with Peacocks, but surely that's the problem? Don't people want Marks to produce reliable products at a reasonable price, not build down to the shoddiest and cheapest?

Going down this route of the race to the bottom is killing our retailing. Even in John Lewis, they are having to cut back on availability of staff on the shops to keep cots down. Result: complaints about service.

Buy the cheapest, and you will lose the helpful well educated staff for ever . If one is lucky enough to find someone, they won't know any more than you do.

Arb.

[Dod101]

I was interested to read in The Times this morning that the M & S transformation actually started as long ago as 2010, when Stuart Rose (remember him?) was Chairman. Successive Chairmen and CEO have come since then and gone and now we have Archie Norman. Nothing much has changed and I think I know why. Culture. M & S has a culture so engrained in the staff attitude, and the customers that it will probably take to its grave if they are not careful. It is so very difficult to change for better or worse. I think the only way that Norman will change it is to close not 100 stores but maybe 250 or more and start getting rid of staff big time. Even then it will be kicking and screaming for its past.

One thing no-one seems to have mentioned is that like Tesco for instance, it owns a lot of its stores on the High Street or so I have always thought and they may not be that easy to get rid of. Why do people still hold this out dated icon of British retailing?

Or for that matter any other retailers?

Dod

[Arborbridge]

Interesting thoughts, Dod. I agree that Marks seems to have had continuous stories about "reform" etc, but no one quite knows to do with it or how best to reform it. They have really difficult problems to solve - amongst the worst is that people now prefer to buy the cheapest and throw it away for new quite soon. The result is that poor old Marks can't succeed on quality because people won't pay enough, and can't compete on price because if they do, they get complained at for lowering the quality! Frankly, the woman I heard talking about Marks on radio 4 was completely unhelpful: she could moan but didn't have any specific pointers to what she was moaning about except vague generalities - and definitely no ideas for how the situation could be improved.*

As to culture: I'm assuming to must mean the culture of the top or middle rankers. I've found (at least since Stuart Rose's time) that the customer facing staff culture is excellent. Knowledgable and helpful would sum it up. Service is good too: I ordered something online last Thursday and picked it up on Friday. The stores I visit are full of bright interesting clothes and excellent food with a bustling cafe. What's not to like?

Sometimes I get the feeling that when companies change, the scribblers carry on grumbling anyway because they love knocking the best. Marks has come a long way since Rose started his revolution: it's just that some people haven't noticed.

*One thing I have urged them to change is their pathetic "Sparks" reward scheme. Let's just have a voucher for cash at the end of collecting all those points, which we can spend. At least then there is a tangible benefit and a real reward.

[tjh290633]

As we don't have the job of turning the company round, it's easy to pick holes in what they do. They seem to have a strong following on the food side, although it always seems overpriced for me, even compared with Waitrose.

At Shoreham they share a site with Tesco, which is far cheaper for food and also does a bit on cheap clothing. Not what you would call fashion, though. The allocation of floor area is very different, probably 80% clothing and household in Marks, more like 90% food and household in Tesco.

They seem to make odd changes, like no pockets on short sleeve shirts, for example. Why? For ladies, trying to find skirts is very difficult. Loads of trousers, but a small corner for skirts. Sometimes skirts and trousers are mingled. I only visit a few times a year, when I have a specific need. It is never simple.

One comment is that they need to sort out head office, as they have a new one but still use Baker Street. Some of the Simply Food stores are massive, bigger than High Street stores were 30 or 40 years ago. I would have ranked those on High Streets as convenience stores. Ready meals and sandwiches.

TJH

[Dod101]

I have no problem with the customer facing staff and in any case they are merely the cogs in the wheel. The two or three M & S stores that I shop in have had the same staff (more or less) for years and I do not know if they still get all the benefits they used to. That paternalistic attitude is fine but it breeds a certain comfort and maybe complacency (a bit like John Lewis I guess) and the wrong culture for the High Street of today.

I do not find the quality of their shirts and trousers to be very good and their sizing is still totally unreliable.

Food is very expensive but on the whole good quality and occasionally I will go to them but am always taken aback by the bill. I could get the same stuff at say Lidl for about half the price.

Fundamentally they seem to me to be a store that have lost their way and have no real idea where they fit in the shopping spectrum. Until they get that sorted out online shopping is not going to make a lot of difference. I knowingly hold only Primark on the High Street and that of course is held through ABF. They know what they are about, very low prices, and quality to match I assume. That is what a lot of consumers want and so they are a close second to M & S in clothing sales apparently.

Dod

[moorfield]

I finally gave up on MKS a couple of months back, when the price fell below my limit of patience at 280p. Well, that just shows me!

You win some you lose some! The important thing with any sort of stop loss control is to apply it consistently, and not let emotions or nose get in the way.

*One thing I have urged them to change is their pathetic "Sparks" reward scheme. Let's just have a voucher for cash at the end of collecting all those points, which we can spend. At least then there is a tangible benefit and a real reward.

Don't know it and not a member - it smells like a vehicle designed to collect data on shopping habits rather than rewarding loyalty.

They seem to make odd changes, like no pockets on short sleeve shirts, for example. Why? For ladies, trying to find skirts is very difficult. Loads of trousers, but a small corner for skirts. Sometimes skirts and trousers are mingled. I only visit a few times a year, when I have a specific need. It is never simple.

For me Marks is the only store I know I can buy the right sizes of shirts, trousers, suits etc. off the peg or online without having to suffer the changing rooms. In that respect they've served me consistently well for many years.

[monabri]

I finally gave up on MKS a couple of months back, when the price fell below my limit of patience at 280p. Well, that just shows me! Looks like another tinkering error at the moment, because since the week after I sold, Marks has established a nice little uptrend, which despite rather downbeat results has continued today.

Arb.

Your timing of the sale was not ideal but I reckon you will not regret it in hindsight. I don't see much future for M&S
unless a sea change occurs - and, let's face it, they've been trying to adapt for many years.....

A 62% fall in pre tax profits...not encouraging.

[Nimrod103]

I have no problem with the customer facing staff and in any case they are merely the cogs in the wheel. The two or three M & S stores that I shop in have had the same staff (more or less) for years and I do not know if they still get all the benefits they used to. That paternalistic attitude is fine but it breeds a certain comfort and maybe complacency (a bit like John Lewis I guess) and the wrong culture for the High Street of today.

I do not find the quality of their shirts and trousers to be very good and their sizing is still totally unreliable.

Food is very expensive but on the whole good quality and occasionally I will go to them but am always taken aback by the bill. I could get the same stuff at say Lidl for about half the price.

Fundamentally they seem to me to be a store that have lost their way and have no real idea where they fit in the shopping spectrum. Until they get that sorted out online shopping is not going to make a lot of difference. I knowingly hold only Primark on the High Street and that of course is held through ABF. They know what they are about, very low prices, and quality to match I assume. That is what a lot of consumers want and so they are a close second to M & S in clothing sales apparently.

Dod

I agree totally with these comments. I have been looking to diversify my share portfolio lately with a purchase in the retail sector, so I have tried to look critically at what retailers are doing right, and what wrong. As a food retailer Marks just cannot sell enough stuff from its mainly town centre locations. What I see is old people buying small amounts which they can carry home on the bus, or to their car parked expensively in the multi story. They cannot match the prices for food basics which Tesco Metro or even Poundland have. The ready meals and £10 deal are OK but bland.

On the clothes front, the colours and designs have improved a bit, but the sizes seem to be selected to attract young slim males, who I would have thought would avoid Marks like the plague. Quality seems to be suspect.

In my town they have a trading estate store which sells only food and furniture, why not clothes? A lost opportunity.

The only bright spot seems to be the Marks attached to my local BP garage, which is busy because it has longer opening hours, and is stacked with ready meals for the busy but affluent shoppers.

It is easy to be critical, but Marks needs a rethink from top to bottom, before I will invest. IMHO it needs to regain its former focus of being the one stop shop for the well off.

[Bouleversee]

Moorfield -

"For me Marks is the only store I know I can buy the right sizes of shirts, trousers, suits etc. off the peg or online without having to suffer the changing rooms. In that respect they've served me consistently well for many years."

But surely you must have noticed a deterioration in quality in recent years. I used to buy pretty well all of my husband's clothes there (and most of mine as well) but the last Blue Harbour sweaters I bought for him pilled and looked terrible before they had even been washed and had to be thrown away. The last time I went, which must be a couple of years ago or more, I could not find anything I wanted to buy at all, not even nightwear, and "I wouldn't be seen dead in it" becomes more relevant with age. They used to have beautiful household linen and good quality furnishing items but no longer.

We have finally, very belatedly, woken up to the environmental consequences of throw away plastic. How long will it be before we wake up to the problems of disposing of all this poor quality, wear a couple of times and discard clothing etc? We are running out of space for landfill and should be buying items which are made to last and look good for longer. I for one would be happy to pay more for such products. I cannot understand why they are competing with Primark and such instead of servicing a more mature clientele who want and have the resources to pay for quality, style and durability. I'm not sure closing stores is the answer; it would be interesting to know which ones. I wonder how much market research they have done with the public. I also wonder whether the stock varies from store to store.

Sorry Mods, rant over, but it had to be said.

[moorfield]

Moorfield -
But surely you must have noticed a deterioration in quality in recent years.

Not really. The machine washable suits I buy are my "drinking suits", so quality is not a priority anyway as they invariably get trashed on my various escapades. My "business suits" come from much classier establishments.

[Arborbridge]

On the clothes front, the colours and designs have improved a bit, but the sizes seem to be selected to attract young slim males, who I would have thought would avoid Marks like the plague. Quality seems to be suspect.

Yes, I've made this point before in such discussions too. Marks is offering things to encourage some younger people in - which is good - but, and it's a big but - Marks isn't seen as "cool" so younger people will not go there to even be aware of these new offerings. There is some hope for them with 25-35 year old women, I would have thought, provided they can get them through the door - which was the point of their advertising in recent years. THey still have an uphill image battle, even if the product has changed.

Arb.

[Arborbridge]

Moorfield -



But surely you must have noticed a deterioration in quality in recent years. I used to buy pretty well all of my husband's clothes there (and most of mine as well) but the last Blue Harbour sweaters I bought for him pilled and looked terrible before they had even been washed and had to be thrown away.
We have finally, very belatedly, woken up to the environmental consequences of throw away plastic. How long will it be before we wake up to the problems of disposing of all this poor quality, wear a couple of times and discard clothing etc? We are running out of space for landfill and should be buying items which are made to last and look good for longer. I for one would be happy to pay more for such products. I cannot understand why they are competing with Primark and such instead of servicing a more mature clientele who want and have the resources to pay for quality, style and durability. I'm not sure closing stores is the answer; it would be interesting to know which ones. I wonder how much market research they have done with the public. I also wonder whether the stock varies from store to store.

Sorry Mods, rant over, but it had to be said.

Some important points here. Whether or not Marks quality has deteriorated can be debated, but personally I think it is beyond doubt over a time scale of 20 years, let's say. But this is forced on Marks by what the public dictates. We have a population who now only seems to judge on price and does not hold quality as particularly important (see the growth of Amazon,Lidl etc) - until they find buying to a price leads to disappointment and complain. They cannot see that they bring this down upon themselves, but moan at the manufacturer or the retailer who can no longer exist by selling service or quality. Even John Lewis is now suffering in that way. Service levels have dropped as they are being forced to compete with disruptors and have reduced staffing skill and service levels. It will go on getting worse if people try out things in store and then shop for cheaper on line. We are to blame for this happening, but do not seem to recognise it is our behave which drives the wheel of change for the worst.

[Arborbridge]

People might be interested in a program about the trouble with M and S on Channel 5 tomight at 21.00.

I fear it will be the usual journalese stuff, but it might give us some pointers to their thoughts on improvements.

Arb.

[Trillis100]

I hold MKS. I am exactly their taget market. I buy school uniform there (it's still excellent), sometimes food, and sometimes polo shirts for my husband, which he likes. Womenswear is atrocious and as much as I want to support them I have just about given up on it. They scatter items around the store almost randomly so I can't go and buy pair of black trousers without covering almost every inch of the store to find all the options. They stick frills and bows and embellishments on things. I'm nearly 50, I don't want that sort of rubbish on my clothes. I want good quality basics that will last, not throwaway fashion. I also want items that are sized consistently. I have bought an item in one colour that fits perfectly, gone back and bought the same item in the same size, just a different colour, and it didn't fit at all. They seem to have been going after younger people's fashion, but young people will never shop there, so all they are doing is alienating their core market. I almost never buy anything from them now, which is a shame. They need to concentrate on good quality basics in a core range of colours, but don't seem to recognise that. People like me have been telling them this for years, but instead they keep chasing 'fashion' that we don't care about.

I am holding for now, but unless they change their buyers I can't see their situation improving.