It’s been a couple of months since the UK stock market’s former bellwether, Marks & Spencer (LSE:MKS), was relegated from the FTSE 100, and handwringing from retail analysts has subsided.
From any perspective, Marks & Spencer has had a rough year. The biggest shock and upset for many formerly loyal City supporters was the dividend cut back in February, and the share price has withered ever since. Fund managers reacted as if they had had their pockets picked.
As the Financial Times reported back then, the shares dived after M&S’s joint venture deal with Ocado’s UK food deliveries business “came with a surprise dividend cut in addition to a £600m rights issue. Jefferies cut the stock off its “buy” list, saying the Ocado joint venture [JV] was “a very expensive way for M&S to defend food volumes”.”
But there’s nothing defensive about a shopping trolley if used in the right way.
Apart from my confrontational view of the world, I really can’t see why anyone believes the likes of chairman Archie Norman to be in defensive mode or that the Ocado JV is a defensive strategy.
Surely, we shoppers of foodstuffs and investments should be seeing Archie as taking on the fast food sector and moving M&S to the top quality end of the food supply aisles both in store and online?
The recent trading statement from the JV was in line with forecasts and showed an 11.4% rise in retail sales. This was despite the blow to Ocado of the major fire at Andover.
There was one titbit of information in there that supports the idea that the Ocado tie-up is part of an aggressive strategy by the chairman: M&S is seeing customers order in food more frequently, i.e., more deliveries per customer, even if that means average spend per delivery is slightly down.
Current advertising is positioning M&S’ ready and ready-to-cook meals at the premium end of the market, and the campaign seems to be paying off. And why not, when the tabloid press are roasting rival fast food delivery companies over dodgy suppliers with zero hygiene ratings and other quality and provenance issues?
There are very few shoppers in the UK who would not put M&S foodstuffs into their trolleys every week or even every day if they could afford to. Aldi and Lidl appeal on price, but M&S on quality and trust.
Group interims are due in a few days’ time, and few fireworks are expected. Archie Norman has already said his leadership will take a few years to bear fruit. He’s been in charge for two years now.
Norman’s retailing and turnaround record is unblemished. And whenever the M&S share price dips too low, he steps in to buy. That’s a strong signal from a man well-known for paying little attention to City analysts and share price gyrations.
With net gearing at less than 60%, I believe this is a stock for your investment trolley.