Marks & Spencer Group (LSE: MKS) may have been forced to cut down dividends recently, though right now, a forward dividend yield of 5% may still attract plenty of takers. After all, it’s a figure that turns the corresponding average of 3.3% for the UK’s mid caps to matchwood.
The FTSE 250 firm’s troubles are both plentiful and significant. Rising competition in the casual clothing space from many of the newer kids on the block like ASOS and Zara makes Marks and Sparks’ product lines look both dated and expensive. Meanwhile, extra competition in the premium edibles category, with all of the Big Four supermarkets and the soaring German disruptors all boosting their ranges of ‘posh’ grocery lines, is hammering sales at the food operation too.
Stuck in a rut
Falling market share isn’t the only thing M&S needs to worry about, of course, as the the entire retail sector continues to be under pressure as well. Latest data from the Office for National Statistics last week showed retail sales (excluding Black Friday transactions) in November fell 0.5% from the previous month.
2019 has proved to be a bruising period for the firm, its share price dropping 11% since the turn of January. It even dropped out of the FTSE 100 during the autumn. But it would be a mistake to brand the retailer as a victim of circumstance — it has shrunk more than 50% in value over the past five years as investors have run out of patience waiting for a turnaround to happen.
Indeed, recent trading data shows that the embattled retailer’s troubles are getting worse. At its core Clothing & Home division, like-for-like sales dropped 5.7% in the three months to September, worsening from the 5.2% drop in the prior quarter and resulting in a 5.5% drop for the fiscal half. As a consequence, underlying sales across all of its UK operations dropped 1.5% year-on-year.
Leave it alone!
In the latest bid to turn around its struggling womenswear segment M&S late last month announced it will be parachuting Tesco bigwig Richard Price into the role of managing director at Clothing & Home in the new year.
The advantage of this appointment over the previous one is that Price, unlike his predecessor Jill McDonald who lasted less than two years in the seat before leaving in the summer, has experience of clothes retailing through his current role in charge of Tesco’s popular F&F clothing unit. Still, he isn’t the only high-profile name to try their hand at pulling M&S out of its tailspin. There have been plenty of others over the years who have retreated with their tails between their legs, and it’s possible that he could prove another victim of the division’s darkening appeal.
City analysts expect group earnings at Marks & Spencer to sink 24% in the current fiscal year (to March 2020). And it would be an extremely brave man to expect the bottom line to bounce back any time soon in the current political and economic climate. I don’t care about its low forward P/E ratio of 11.5 times and big dividend yield — this is a share I won’t touch with a bargepole.