Will M&S come back in fashion?

HAS Marks lost its sparkle? The question has dogged Middle England’s once-favourite retailer as sales continue to slide – including another set of results this week that were branded ‘ anaemic’ by some City analysts.

Fears range from rising competition in the food market to concerns that rivals, such as Next, continue to outstrip M&S when it comes to clothing.

Advocates of boss Marc Bolland, who joined in 2010 from grocer Morrisons, say he has put in place the necessary changes that will propel the group back to the top of the High Street league.

But others have raised concerns that he is tinkering while the chain’s reputation as a fashion leader declines.

This week showed that clothing sales have, finally, begun to rise – eking out 0.6pc growth. But fresh worries hang over the group’s food offering, which had been revived under Bolland and was seen as its sure anchor in the midst of the stormy fashion seas.

City analysts are split on the issue. Data compiled by the FT showed that 14 analysts have ‘hold’ recommendations on the shares, while two are outright sellers and eight advise investors to ‘buy’.

Bolland said this week that the group would not be impacted by rising food prices.

He said claims the firm was ‘not immune’ were missing the point of M&S Food, and were only raised by one bank.

What he failed to mention, how- ever, was that the ‘one bank’ was Goldman Sachs – which added the retailer to its ‘conviction sell’ list just days before the results.

The Wall Street titan scaled back its profits expectations for Marks by a fifth for 2016 after saying ‘we believe the grocery market will become more competitive’.

It forecast a ‘weaker than previously expected performance in both the UK food and GM [non-food] divisions’. The bank lopped off its share price valuation from 420p – only 13p lower than the current trading price – to a humbled 340p.

M&S claims its shoppers are not driven by price – and are willing to fork out more for a meal for that evening than picking over the price tags of the raw ingredients.

But Goldman warned an ensuing price war between the grocers posed ‘an increased threat to its customer base’ of 11m households – many of whom also shop at M&S for party frocks and underwear.

But not all analysts are as bearish, with BNP Paribas saying food profitability has doubled in the past three years. Analyst Simon Bowler said he expected this trend to continue, with the ‘worst case scenario’ being a 7pc reduction in group profits – not quite the apocalyptic 20pc issued by Goldman.

Profits this year at M&S are expected to fall to the lowest level since 2009 – and the second lowest since 2002. Dividends over the past ten years have risen from 11.5p a share a decade ago to 17p last year – mirroring the share price, which has risen 50pc in a decade. This year’s half-year payment was 6p a share, flat over the past three years.

M&S’s main clothing competitor Next has seen its shares rise 353pc in the same period, while its dividends have gone up from 35p a share in 2004 to 105p last year.

Ultimately, buying or holding on to M&S shares is a vote of confidence in Bolland’s ability to rejuvenate the firm. The Dutchman is coming to the end of his three-year turnaround plan – with a broad consensus that he is doing the right things. But analysts still question how long it will take to bear fruit.

Analyst Sam Hart at Charles Stanley yesterday said: ‘We think group strategy is essentially correct. It remains unclear, however, whether the group can return to delivering sustained growth in earnings and dividends over the longer term.’