Thursday preview: M&S reports third quarter trading

Marks & Spencer reports its third quarter trading update after mild weather rattled the retailer's shares over Christmas.

Credit Suisse (CS) said despite another quarter of soft comparisons for general merchandise (GM), it expects like-for-like (LFL) sales of 0% in the division. In food, the broker predicts a 1% rise in LFL sales.

"With discounts of 30% or more widespread across the store for several weeks we have also cut 20 basis points from second half gross margins, partly offset by lower operating expenditure," CS said. "We now forecast PBT of £682m and have cut another 2.5% from earnings per share."

CS lowered its target price to 475p from 500p and reiterated a 'underpeform' rating for the stock. The analyst cut 2.5% from its full year earnings per share estimate to account for "another disappointing Christmas".

However, CS said it did not believe that the impact from adverse weather should be considered a distraction from the underlying issues with M&S, namely the need to downsize the UK GM store estate.

"After five years of downgrades, we remain very cautious about M&S recovery prospects and our forecasts for the next year years remain c10% 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 company's sales plunged 1.9% in the second quarter.

Thursday 7 January


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