M&S will underperform peers for years, Credit Suisse says

Adverse weather led to another month of very soft comparables for retailer Marks&Spencer, but far more important for the company would be whether it could downsize its general merchandise store estate, Credit Suisse told clients.

The Swiss broker was now forecasting like-for-like growth in sales of just 1% in food and zero in general merchandise.

Several weeks of discounts of 30% or more across the store also meant second half gross margins would be 20 basis points lower.

That led analysts Simon Irwin and Pradeep Pratti to cut their forecast for earnings per share by 2.5% which lowered their estimate for profits before tax to £682m.

"After 5 years of downgrades, we remain very cautious about M&S recovery prospects and our forecasts for the next year years remain circa 10% below consensus. We expect M&S to continue to lose market share in GM due to its margin-focussed strategy and platform changes, while competition continues to build," the analysts said in a summary of a research note sent to clients on 22 December.

Hence, the analysts' recommendation was for the chain to be much more aggressive in churning its UK retail space, closing 5% of its stores and re-opening 3%.

To fund such a move, they said M&S would need to cancel its annual £150m of buybacks.

On the back of all of the above, the broker cut its 12-month target price on the company's shares from 500p to 475p.

"While the shares are very oversold at present (1m -13%) we believe they will continue to underperform retail peers in the year ahead."