Canaccord upgrades M&S to 'buy' after fourth quarter numbers

Marks & Spencer was upgraded to ‘buy’ from ‘speculative buy’ by Canaccord Genuity on Friday after the retailer reported its fourth quarter results.

Canaccord also raised its target price on M&S to 475p from 460p, saying there was potential for a new strategic focus under new chief executive Steve Rowe to drive higher shareholder returns.

M&S on Thursday reported a 1.9% increase in group sales as an increase in food sales offset another decline in the struggling general merchandise division.

Food sales were up 4.0% in total but disappointingly flat on a like-for-like (LFL) basis, short of a consensus forecast of 0.5%.

Clothing and home sales, known as general merchandise (GM), were down 1.9% in total and 2.7% on a LFL basis. The consensus for LFL sales was a 3.5% decline.

Rowe vowed to revive the clothing business, admitting “this performance was not good enough”.

"Although the sales decline in Clothing and Home was lower than last quarter, our performance remains unsatisfactory and there is still more we need to do."

Rowe, former M&S executive director of general merchandise, took over from Marc Bolland on Saturday and said he would continue to oversee the clothing division.

“This category has long been a drag on profit performance and sentiment, and will be addressed through a number of measures, some of which are already yielding some early signs of encouragement,” said Canaccord analyst David Jeary.

“These include, but are not limited to, better prices, better fit, better availability and better customer choice (by reducing line proliferation). None of these are - or should be - earth-shattering revelations, but rather they are - or should be - core competencies for any clothing retailer.”

Canaccord left its forecasts unchanged and said it will review them again after Rowe’s strategic plan is presented in May.

It has estimated full year 2016 adjusted earnings before interest tax, depreciation and amortisation of £1.33bn, up slightly from the previous year's £1.31bn. Sales are expected to come in at £10.38bn, compared to £10.31bn in 2015.