M&S: what the analysts say

Marks & Spencer reported strong sales figures today, the first full update from its new chief executive Marc Bolland, who took over from Sir Stuart Rose in May. Here is what retail analysts made of the numbers. Freddie George, Seymour Pierce The figures for the quarter ending September came in at the top end of market expectations. Despite two better-than-forecast quarters, management, however, is flagging up that because of costs being at the top end of the guidance range, results are in line with consensus. We are reiterating our Buy recommendation on the stock. First, the trading update does indeed indicate that general merchandise now has real momentum … while M&S's food sales have been recovering, benefiting from the introduction of a branded range, customers trading up and the 'staycation' trend which is gaining traction at weekends thanks to X Factor and Strictly Come Dancing. Secondly, we continue to believe that the strategy update, due to be given by Marc Bolland on the announcement of the interim results in November, will have a positive impact on the share price. Thirdly, the stock remains undervalued in our view. It is valued at 11.8 times 2010/11 earnings declining to 10.9 times in the following year with a prospective dividend, almost 2 times covered, yielding over 4%. Katharine Wynne, Investec Although the scale of upgrades will be tempered by the guidance on increased cost growth, our own below-consensus forecast now looks around 8% too low for the financial year 2011, with the second quarter delivering a step-up in growth rates, despite a tougher comparative. We are placing our price target under review. Menswear is outperforming womenswear (suit sales being notably strong) but the latter has now started to see market share gains. M&S has had the benefit of an earlier intake of autumn stock – appropriate given the weather – because summer stock was very tight, which indicates gross margin progress in the first half, notwithstanding negative currency pressures. Matthew McEachran, Singer M&S has issued an excellent second-quarter trading update, exceeding expectations in general merchandise in particular as consumers have responded to improved quality and fashionability. This looks like it could lift first-half earnings per share growth to the top end of the 10-15% range we suggested. However, management is cautious about the outlook and financial year guidance is not changing. Consequently, the small first-half beat will lead to only very minor forecast changes if at all. We maintain a sell stance ahead of strengthening 2011 headwinds. Neil Saunders, consulting director of Verdict Beyond its financial importance, today's trading update from M&S has a certain psychological significance: it is the first full update under new CEO, Mark Bolland, and it is the benchmark against which he will be judged. Overall the benchmark is a high one. Trading performance has been very impressive with good gains made across all parts of the business. Admittedly, the numbers are set against relatively weak comparatives last year but they have advanced solidly in the right direction. To some extent, market conditions are now much more favourable to Marks & Spencer and consumer trends should be to its advantage. In clothing, shoppers are more interested in quality and are willing to trade up; while in food, lower inflation means a less price sensitive consumer who is willing to buy more premium product. Both of these things play into M&S's hands and, along with its development work over the past year, have helped to generate this set of positive numbers. The big question mark, and the big challenge for Mark Bolland, is over how long can this performance be sustained. With the negative headwinds of government cuts on the horizon, the consumer environment is likely to become much tougher; meanwhile, competition from Waitrose on the food side and many others on the clothing front is intensifying. Against this, M&S will have its work cut out to keep sales growth at such positive levels.