Rose still waits for full bloom
WHAT a difference a month makes. When Marks & Spencer presented its upbeat sales report in October the headlines were stolen by a hissy fit from per una founder George Davies, who was making all kinds of exorbitant demands.
It seems that people in the fashion industry like a little histrionics. After the protagonists – Stuart Rose and Davies – sat down together last week it was all sweetness and light again, with the man behind per una agreeing to stay around, with his daughter Melanie, for an annual fee of £1m until June 2006 at least – phew.
Despite the snag with Davies there has been a big relief rally in M& S shares since the October sales figures carrying them to a six-year high, well above the 400p of Philip Green’s indicative bid.
Much of the share price performance is down to the turnaround in clothing sales in the third quarter, with improvements across the whole range.
Better stock control enabled the group to enhance gross margins despite lowering prices across the ranges to make them more competitive.
What will be really encouraging to long- term M& S followers is that after several years of entrenchment Rose is now talking of heavy investment in stores, with capital expenditure rising to £450m-£500m as the group seeks to update a tired portfolio.
It also aims to increase the presence of Simply Food – already being rolled out at BP service stations – with as many as 100 new outlets added. A board weakened by a fast revolving door is also being restocked. Usefully, the new nonexecs – Lady Patten coming across from Somerfield and Jeremy Darroch of Dixons and now BSkyB – do have some retail know- how. Rose likes to be surrounded by those he trusts, and the elevation of marketing boss Steven Sharp fits into this category now that his right-hand man Charles Wilson has flown. A cold snap now would clearly help to ensure that the profits progress of the first half (see below) can be carried on. Otherwise, the upgrading of the shares might start to look over- enthusiastic.
Family affair
THE one retailer which really has been able to buck trends is Primark. Indeed, most of the analysts’ questions thrown at chief executive George Weston addressed the future of the High Street’s current clothing phenomenon following the fire which wiped out 50pc of stock.
Paradoxically, the disaster has led to panic-buying at some Primark stores by customers fearing that goods will run out.
But the real long-term issue for its owners, Associated British Foods – in which the Weston family vehicle Wittington holds 54.5pc of the shares – is whether Primark has become the tail which wags the dog. Not so, says Weston, who thinks it is only good business sense to keep up the investment in a business that is going great guns.
Indeed, he and the Irish team which helped create Primark are now eyeing Spain as the next expansion target. A sell- off? No chance.
Weston emphasises that this does not mean the rest of the business is being neglected.
Changing food tastes mean being nimble. China is now becoming a key market for yeast as they move from a rice- based diet to bread, whereas ABF’s traditional bakery market in the US is suffering.
Niche businesses, such as selling Ovaltine in Thailand and the push into ethnic foods in Britain, are paying off, as is the rebranding of Twinings teas.
Family ownership means that ABF may be less focused on quick returns than private equity firms or companies with a large free float in the shares. But if the company can create a Primark, why should anyone care?
FT sale
TWO Pearson departures, those of chairman Lord Stevenson and the FT editor Andrew Gowers – to be replaced by Lionel Barber – have thrown attention on to the City’s parish magazine.
Broker Numis suggests this might be the crossroads for Pearson’s ownership of the FT. It notes that while it is an immensely strong brand, it is dwarfed by the Wall Street Journal both as a paper and an internet website.
It was fine for Pearson to own the FT when it was a quirky collection of companies with the Cowdray family still holding the reins. Now that Pearson has been transformed into a world- class player in education publishing, the FT sits uneasily and would be better owned by a group with ‘ink in its veins’ such as News Corporation or DMGT – owner of the Mail – says the broker.
The price would be steep, with Numis placing a value of £573m on the FT, which was until recently a loss- maker. But then – as we know from the Telegraph auction – newspaper ownership defies normal commercial rules.