4th November 2015
As Marks & Spencer shares rise by 4% on half-year results, Helal Miah, investment research analyst at The Share Centre, explains what it means for investors…
M&S’s half year report was welcomed by the market this morning, as the shares rose approximately 4% at the open. Group sales were reportedly up 1.4% to £5bn and unsurprisingly, the foods business was the main driver of sales growth, up 3.3%. This was likely to have been helped by the 32 new Simply Food stores opened by the business during the period.
However, it was disappointing to see that General Merchandise sales fell by 0.4% and 1.2% like for like. Especially so as there had been hopes over the few last few quarters that this division was showing some signs of a turnaround. Despite the sales decline, investors should acknowledge that management have succeeded to increase profitability through efficiencies as the gross margins rose to 285 basis points.
We believe that there is still momentum in the General Merchandise business which was impacted this quarter by unseasonal conditions, which led to higher levels of promotional activity. Investors should be aware that sales from the group’s online business was up by a very encouraging 34%, with a 20% increase in traffic driven by more consumers shopping on tablets and mobile phones.
Subsequently, we continue to recommend Marks & Spencer as a ‘buy’ for investors seeking a balance of income and growth and willing to accept a medium level of risk. The UK economy is relatively robust which has led to high levels of consumer confidence and retail spending. We trust this should continue in the foreseeable future. The key risk is the looming interest rate hike however, interested investors should note that this should only be at a very moderate pace.