Berenberg downgrades M&S on structural challenges

It reckons M&S will continue to lose share in General Merchandise, largely offsetting the top-line growth in Food, while its multi-channel strategy continues to put pressure on margins and return on capital.

The bank is 1%/6%/12% below consensus earnings per share in FY 2016/17/18 as it forecasts 2% compound annual growth rate over the same period.

With continued disruption from the pure-play online retailers as well as discounters and the shift in footfall in the UK from the high street to retail parks, Berenberg said the revenue decline in the near term is unlikely to stop.

While M&S’s store relocation programme can have a positive impact with regards to the latter, at around 10 stores per year, the shift is not fast enough, the bank said.

Meanwhile, management’s strategy to the level of promotional activity further dampens like-for-lie growth potential.

On the upside, however, Berenberg said Food was a key strength.

“Operating in the high-quality convenience niche the business is somewhat sheltered from the margin pressure in the broader grocery sector.”

At 1437 GMT, M&S shares were down 1.5% to 432.78p.