Marks & Spencer hopes sales to reverse stock´s fall

Monday, 23 December 2013
Shares at Marks & Spencer are feeling the pain as quite a few of analysts covering the stock have cut down their recommendations in an attempt to warn on the negative effects of heavy discounting.Earlier last week, Marks & Spencer's shares slipped 2.39 percent to 441.5 pence the same day the retailer started offering 30 percent off knitwear, its core seasonal product category, and off the Per Una brand.

Additionally, Britain's biggest clothing retailer held a one-day sale on the Saturday before Christmas, offering a 30 percent discount on all non-food items, in an attempt to drive higher trading, as a source close to the company told Reuters.

Commenting the movements, retail analyst Nick Bubb stressed that "With much of its non-food range on promotion anyway this week, it is arguably not much of a step to just promote everything, despite the irritation caused to loyal customers who have paid full price in recent weeks."

"Whether it will turn out to be worth doing that in the short-term, just to try to save the CEO's job, remains to be seen, but the M&S brand will suffer long-term damage," he added.

Marks & Spencer tries heavy discounting to reverse stock´s fall

"The clothing retailers look to have pressed the panic button this year," wrote Andrew Hughes, who has reviewed downward its forecasts for Marks & Spencer by 3 percent. The UBS analyst added that "There is an increasing fear that the consumer wallet is smaller and only the retailers with promotions will get the footfall."

Hughes said Marks & Spencer was likely to miss the profit-margin increase it had targeted for non-food items in the second half of its financial year, as the store was having to discount some of its bestsellers in the heavily promotional climate.

Similarly, Jonathan Pritchard, at Oriel Securities, agreed with Hughes´ vision on the beloved British high street retailer, lowering his profit forecast for Marks & Spencer by 8 percent. "We expect that ultimately the disappointments will come on gross margins rather than sales," he said, not only talking about Marks & Spencer but also about other market peers such as Debenhams or New Look.

In the same vein, Nomura´s Fraser Ramzan cut his forecasts for Marks & Spencer´s full-year profit by 4.7 percent, arguing that shoppers' disposable incomes remained under pressure despite more positive signs on employment and inflation in recent days.

On the back of the gloomy market´s expectations, Marks & Spencer´s shares dropped 3 percent over five days. The stock has shredded 10 percent over the last month, adding even more pressure on CEO Marc Bollan and his turnaround plans for the retailer.

With these figures in mind, no few analysts are forecasting a tenth quarter of decline, as the company is due to report results for the third quarter early in January.

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