Something spectacular must have happened since August for Marks & Spencer to upgrade earnings guidance once again. Back then, it believed pre-tax profit for the year would be above the upper end of a previously guided £300 million to £350 million range. Now it’s talking about profit hitting £500 million which is quite some jump.
Food sales are doing incredibly well, particularly instore. It has really nailed the proposition with decent quality products and an ever-widening range of items. Quality is the key word as it caters for a specific type of customer who is happy to pay that bit extra for something nice.
“Its online joint venture with Ocado has also helped the business reached a broader audience, such as individuals who want higher quality products but don’t want the faff of visiting a store,” AJ Bell investment director Russ Mould said.
“Clothing continues to be a mixed bag, but the company comes across as more confident about its prospects. Overall sales aren’t growing but operating profit is, thanks to selling more items at full price.
“Marks & Spencer has a reputation for being the place you buy you undies and socks, or perhaps push the boat out and buy a pastel-coloured sweater. Yet that isn’t enough to sustain a proper clothing business.
“Suits and formalwear have been pushed to one side and more floorspace given to athleisure, jeggings and jeans. The only problem is that so many of its customers are old and don’t want to wear splashproof running bottoms. The company needs to attract a younger crowd and it could take a long time to change its image as the brand is still associated with slippers and socks.
“Just imagine if Marks & Spencer and Next merged. The former has nailed the food proposition and the latter is an expert in clothing. Together they could be a real force in the retail sector. But such a tie-up seems unlikely as Next doesn’t need any help and it is full of bright ideas to keep growing profits, food certainly not being on the menu.”