Stuart Rose is generally seen to have done a good job at Marks & Spencer, give or take the odd profits warning, attempts to reinvent the jam sandwich, and of course, the small matter of its share price.
M&S’s all powerful chairman rescued the company from the claws of Philip Green – aka the King of High Street – and then stabilised the business after the disastrous tenure of the previous incumbent, Luc Vandevelde.
Or has he?
Credit Suisse’s Tony Shiret has been looking at the operating and financial performance of Britain’s biggest clothing retailer under its current management and concludes the retailer has, financially at least, made no progress:
We conclude that even before the current rapid deterioration of profitability the company had made no financial progress outside of the £320m of largely supplier-funded cost savings initiated in 2004, and around £150m resulting from changes in accounting assumptions related to expense realisation and the treatment of pension entries, by which the reported results in 2007/08 benefited.
But that’s not all that worries Shiret. Equally worrying, he says, is Rose’s failure to address and reverse the company’s long-term drift towards a much older customer base. (By that he means the baby boomers.)
As at 2008 48% of expenditure on clothing and 65% of main clothing shoppers were over the age of 55—while 76% of food shoppers are over 45 years old. This adds additional financial risk in 2009 in our view, given low investment returns on savings. Over-55′s share of M&S’s clothing sales has increased by 31% over the past 10 years and by 10% over the past four years.
The answer? Shiret reckons M&S needs to break itself up.
We suggest this needs to involve a re-working of the store network into a core, serving older customers out of the larger units while M&S establishes a more relevant young chain in its smaller stores over a period. We believe the cost of this is likely to dampen any recovery and we should probably be valuing 15p of earnings and around 7.5p of dividend in 2012E as a proxy for the financial effects of this type of reorganisation, suggesting a share price of 160p.
Shares in M&S were trading 11p lower at 250p on Monday.