Shares in Marks and Spencer (LSE: MKS) plunged in early deals this morning but have since recovered after the company reported its full-year results for the year ending 1 April 2017.
On a headline basis, the company reported a sharp drop in profit thanks to increased restructuring costs. Pre-tax profit for the period collapsed to £176.4m from £488.8m in the year-ago period. However, revenue rose slightly from £10.56bn to £10.62bn off the back of growing food sales.
For the year the company reported food sales increased 4.2% overall, offsetting a 2.8% decline in clothing and home sales — an extension of the trend that has been blighting the company for many years. That being said, management noted today that while clothing and home sales declined by 2.8% for the period, the majority of this decline was a result of the decision to reduce the number of promotions and clearance sales in stores. Excluding this, full price clothing and home sales grew by 2.7%.
These figures hint at the fact that Marks & Spencer could be finally on the road to recovery although the group still seems to have a long road ahead of it. Even though revenue rose overall, it seems all of the growth was a result of new store openings. On a like-for-like basis, food sales slipped by 0.8%, and like-for-like clothing and home sales declined by 3.4%.
Time to buy?
Today’s figures from Marks & Spencer are a mixed bag. The company is making progress, but declining like-for-like sales figures are concerning.
It’s clear investors have lost patience with the company over the past two years. Even after rising by around 13% since the beginning of 2017, shares in the enterprise are still down by more than a third since the 2015 high of 600p.
A lack of progress is clearly to blame for this lacklustre performance. Today the company reported adjusted basic earnings per share for the 52 weeks ended 1 April 2017 of 30.4p, down 13.1% year-on-year and down 4.7% from fiscal 2012’s reported figure of 31.9p. City analysts are not expecting this trend to change anytime soon. Earnings per share are projected to slide to 29.2p for the fiscal year ending 31 March 2019. And based on City figures, shares in Marks & Spencer are currently trading at a forward P/E of 12.9, which doesn’t look particularly cheap for the struggling business.
The bottom line
So overall, even though the market seems to like the results out from it today, it doesn’t look to me as if the group is moving forward. If anything Marks & Spencer looks as if it is struggling to tread water.
For the past five years management has consistently told investors that the company is in the process of turning itself around, but so far no real turnaround has emerged. As online clothing retailers continue to grab market share from the group, and competition in the food sector only increases, management is only going to find it harder to get the business back on a stable footing.