Marks & Spencer shares hit by Barclays downgrade

“We expect a painful transition and material earnings per share downgrades. We view the price cuts in clothing lines as an essential but mostly corrective action that could keep General Merchandise LFLs deep in negative territory in FY17 and FY18.”

The bank said it expects the strong appreciation of the US dollar and higher cotton prices to have a 130 basis points negative impact on FY18 gross margin, adding to the pressure, while investment in service does not leave much room for cost cutting.

Barclays said it does not see material downside risk to M&S’s multiple but has cut its full-year 2018 EPS estimate by 20% and is now 17% below Reuters consensus.

“November’s strategy update may include positive news on the simplification of the clothing sub-brands, the rationalisation of M&S’s international business and better use of the company’s store estate. While we expect this to be positive in the longer term, it is unlikely to have a positive impact on earnings over the next two years.”

The bank said current low visibility on EPS was unappealing and with no signs of stabilisation in consumer confidence, a re-rating is unlikely.

At 0833 BST, M&S shares were down 2.9% to 319.10p.