Why Buy Marks and Spencer Group Plc When You Can Go Shopping For Associated British Foods plc Instead?

I’ve been bearish on retail giant Marks & Spencer (LSE: MKS) for some years, ever since I stepped into its flagship Oxford Street store and thought I had stumbled into a charity shop rather than the women’s clothing section.

I’m not the only one who thinks Marks is a fashion disaster, Phil Dorrell, director of consultancy Retail Remedy, has just condemned its stores, which he says “feel like museums where older people go to browse endless rows of black slacks”.

That may be a bit ageist, but if you want to make money selling clothes, you need the young pound, and M&S is just too frowsty to grab it.

Out Of Style

Nothing Marks has done since has shaken my perception that it’s a great food store with a naff clothing operation attached, and its half-year results confirm this, with a 2.9% fall in non-food sales.

Worse, it has failed to crack another youth-biased market, the internet. Sales at M&S.com are down 6.3%, rivals such as Next, Zara and H&M sashay stylishly ahead.

Eat That!

But what do I know? Investors relished a surprise 2.3% rise in underlying profits to £268m, partly due to a successful cost-cutting programme.

M&S overall group sales rose 0.5% to £4.9 billion. Food glorious food did it, rather than fashion dreary fashion. 

A 4.2% yield helped sharpen investor appetite, and the shares leapt a sprightly 9%, to my continuing surprise.

I remain sceptical. The M&S share price is still 17% down on 12 months ago.

And this still feels like two companies: Marks should seriously consider giving up clothing, and devoting itself to what it does brilliantly, upmarket food. Then I would fill my face with its stock. 

Prime Time

Associated British Foods (LSE: ABF) looks a better fashion fit, as its all-conquering clothing subsidiary Primark delivered a 30% rise in full-year revenues, increased selling space by 10% and opened in France, its ninth country of operation.

The US is next in line, where Primark expects to open its first store late next year, with another nine or so to follow by the end of 2016.

ABF’s grocery division delivered a healthy 24% rise in profits. What a shame its sugar division soured everything, with profits down 54% on headwinds in Europe. 

Primark rules the day, and ABF’s share price is flying, up 7% today.

ABF has so far resisted the temptation to float Primark, which is a pity. That would definitely deserve a place in my portfolio, alongside a new entity called M&S Food.