Investment View: Despite Bolland’s efforts, steer clear of retail’s Titanic - Sharewatch - Business - The Independent

Investment View: Despite Bolland’s efforts, steer clear of retail’s Titanic

Investors in Marks & Spencer seem inclined to take a long-term view with its management

There’s one retailer I’d have no hesitation investing in right now: John Lewis. Unfortunately that’s not possible. It’s a partnership, owned by its staff. Perhaps that’s part of the reason why the business has been so spectacularly successful. The unusual ownership structure for a retailer means management can take the long-term view.

But let’s have a look at some of the bigger high street retailers that you can invest in.

Funnily enough, investors in Marks & Spencer (M&S) seem inclined to take a (relatively) long-term view with its management. After numerous rearrangings of the deck-chairs at the top of the retail sector’s Titanic, they seem ready to give the current captain, Marc Bolland, some time to avoid the iceberg, although they should surely make their feelings known if the company tries to suggest he’s worth a bonus, given the current struggles.

One reason why an undeserved bonus might be paid is that M&S shares haven’t performed badly over 12 months.

When this column last looked at the company the recommendation was avoid, with the shares at 323.1p. Since then they have increased in value by about 15 per cent. That’s not bad, but some context first: Next added nearly 50 per cent over the same time period. Debenhams, nearly 60 per cent.

The M&S share price won’t be helped by its trading statement last week. Every time the numbers are repeated it’s as if another arrow has been fired at Mr Bolland’s reputation, built up by success at Morrisons, which has struggled since he left.

Here they are again: excluding the contribution from new store openings, general merchandise (clothes and such like) was down 3.8 per cent over the crucial Christmas trading period. The City had expected a fall of 1.5 per cent. Food continued to hold up, with a rise of 0.3 per cent. But that was still a disappointment when set against analysts’ forecasts. It’s also worth noting here that the 3.8 per cent fall would have been much, much worse were it not for a 10.8 per cent rise in online sales. Marks’ stores are not doing the business.

By the middle of this year we will see if Mr Bolland’s prescription for what ails M&S can make a difference to those stores. That is John Dixon, a star at the food business who has no experience of clothes, and Belinda Earl, a part-time style director who has run Debenhams and Jaeger. M&S trades on 11.2 times forecast earnings for the year ending 31 March while offering a 4.5 per cent yield. The dividend payout is nearly twice covered by earnings – M&S is still a profitable business – so is stable for now.

But the valuation is less important than whether you feel the Dixon and Earl show can turn around a seemingly interminable decline with some fresh new ranges. If you’re sceptical (I am – I think it will require something more radical), avoid the shares.

Next trades on 14.2 times earnings for the year ending 31 January with a prospective yield of 2.6 per cent. For 2014 those figures are 12.9 times and 2.9 per cent. However, we know what Next is all about. It serves a much younger demographic, which laps up its online Next Directory business. Sales during the Christmas period there increased by 11 per cent. The shops were less cheery. Analysts think sales at stores open at least a year, commonly known as like-for-like sales, fell just over 1 per cent. The company doesn’t offer this figure, but M&S would kill for a number like that.

With clever stock management and limited discounting ,Next is forecasting that profits for the current trading year will be good. It promises to grow them more next year.

The shares look toppish right now. The trading environment remains tough, and retailers are prone to swing up and down. Sometimes they get it wrong. All the same, I’d still want to hold Next, because it tends to get things right.

As for the aforementioned Debenhams, sales were good at the department store chain. But this company had to cut prices to draw customers in, and so profit expectations have been lowered. The shares came off quite a bit as a result of that. For now, I’d steer clear. The company is not all that expensive at 10 times expected earnings for the year ending 31 August with a 3 per cent yield.

But department stores are not where I’d want to be investing given the tough climate for consumers. However, if the shares fall more it may be worth buying on the weakness.

Suggested Topics
News
John Travolta is a qualified airline captain and employed the pilot with his company, Alto
people'That was the lowest I’d ever felt'
Life and Style
healthIt isn’t greasy. It doesn’t smell. And moreover, it costs nothing
News
peopleThe report and photo dedicated to the actress’s decolletage has, unsurprisingly, provoked anger
Property
Home body: Badger stays safe indoors
property
PROMOTED VIDEO
News
The programme sees four specialists creating what they believe are three perfect couples, based on scientific matchmaking. The couples will not meet until they walk down the aisle together
tvUK wedding show jilted
Arts and Entertainment
US pop diva Jennifer Lopez sang “Happy Birthday” to Gurbanguly Berdimuhamedow, president of Turkmenistan
musicCorporate gigs become key source of musicians' income
Arts and Entertainment
You've been framed: Henri Matisse's colourful cut-outs at Tate Modern
artWhat makes a smash-hit art show
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
filmsDaniel Craig believed to be donning skis as 007 for first time
Sport
Mikel Arteta pictured during Borussia Dortmund vs Arsenal
champions league
Voices
Yes supporters gather outside the Usher Hall, which is hosting a Night for Scotland in Edinburgh
voicesBen Judah: Is there a third option for England and Scotland that keeps everyone happy?
Arts and Entertainment
Pulp-fiction lover: Jarvis Cocker
booksJarvis Cocker on Richard Brautigan
Arts and Entertainment
Robin Thicke and Pharell Williams in the video of the song, which has been accused of justifying rape
music...and he had 'almost no part' in writing it
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Sales Executive

£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

Payroll & Accounts Assistant

£20 - 24k + Benefits: Guru Careers: This is a great opportunity for an enthusi...

SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Senior BA - Insurance **URGENT**

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week