Product Availability Challenges At M&S Leads To The Departure Of Its Clothing And Home Business Boss

In a recent development at 135 year old British retailer Marks and Spencer (LSE: MKS), the group notified the London bourse in an exchange filing as on July 11, 2019, that Jill McDonald – Managing Director of Clothing and Home is departing from the company after less than two years in the Job. Steve Rowe – CEO at M&S is taking charge of clothing and home business directly in the near term. The CEO commented that McDonald was brought up to fix a strong platform to revamp the Clothing and Home business, and she has attained it. She has hired a pool of talented team, enhanced quality and style of product and installed a clear way for the group to receive traction from the younger family age customer.

He also added, “it is now high time to fix the challenges with Clothing and Home business supply chain regarding product availability and flow of product.”

Steve Rowe also said a February promotion for jeans was an unwelcome repercussion for the company when it failed to purchase adequate inventories and sold out. It was one of a major crisis in causal trousers I have ever witnessed, Rowe added.

Jill McDonald joined the British retailer in the month of October 2017, and she had earlier rendered her services as CEO for a bicycle and car parts company Halfords. Her joining at one of the biggest jobs in British fashion raised eyes of many as she did not have any prior retail experience.

About Marks and Spencer Group

Marks and Spencer Group Plc (MKS) is a London, the United Kingdom-based company and is a well-known retailer of clothing, footwear, home furnishings, beauty care, accessories and foods products through a network of retail stores and online channels. The company trades at the London Stock Exchange and is a part of the FTSE 100 index. According to the annual report of 2019, the company’s business operations are spread across 57 countries and has a customer base of around 32 million users and established stores of around 1,487. On March 19, 2002, its shares got admitted to the main market of the London Bourse for trading. The outstanding market capitalisation of the company stood at £4.01 bn, which ranks it among the large-cap companies listed on the London Bourse. The company is a constituent of the broader indices like FTSE 100, FTSE All-Share, FTSE 350, and FTSE 350 High Yield.

Key Managerial Employees

Archie Norman – Chairman; He was appointed as Chairman of the M&S in the month of September 2017, carrying a handsome amount of experience in the retail arena with an extensive track record in value creation and business change. He had a crucial role in transforming many British businesses, including business like Asda, Energis and Kingfisher.

Steve Rowe – Chief Executive; He got associated with M&S in 1989 and worked on a variety of roles with the company. He is carrying an extensive experience across the business units of the group during his past 25-years of association with the company. He was scaled up to the Chief Executive position in the January 2016 and assumed his office as on April 02, 2016.

Key Institutional Investors in M&S

Institutional investors held approximately 30.4% total equity capital of the group, with Schroder Investment Management Ltd., Threadneedle Asset Management Ltd., Majedie Asset Management Ltd., The Vanguard Group, Inc., BlackRock Fund Advisors, The Wellcome Trust Ltd. (Investment Management), Jupiter Asset Management Ltd., Capital Research & Management Co. (World Investors), Invesco Asset Management Ltd. are some of the major institutional investors in the group. (Source: Thomson Reuters)

A Strategical Joint Venture with Ocado Plc

In an exchange filing made by the company as on February 27, 2019, the group notified the stock exchange regarding creation of new 50/50 joint venture with Ocado Group Plc (a one of the leading British pure play digital grocer) and said that, this could change the dynamics in the online grocery shopping for the UK consumer.

In this arrangement, the retailer will have a 50% stake in the Ocado’s UK retail business, and this would be backed by its Smart Platform called OSP. The 50% stake in the Ocado’s UK retail business comes for a total consideration of £750 mn, which includes a deferred consideration of up to £187.5mn plus interest.

However, this strategical move carrying potential to unlock growth for Marks and Spencer’s Food business through a profitable and scalable existence in the UK’s fastest growing online grocery market. Also, it would be instrumental in creating a long-term value creation for both the companies and shoppers will benefit from the higher range in Britain’s food retail.

The group is expecting for potential synergy of the JV for its Food business of at least £70mn per annum, and this could be achievable by the third year following completion, and this synergy is expected to derive from increased buying interests, harmonised buying terms, joint marketing initiatives, shared ideas and complementary category and regional mixes.

Key Financials

In the past five years, the group’s revenue has recorded a compounded average growth rate of negative 1%, also on YoY basis, group’s recorded revenue of £10,377.30mn for the financial year ended March-30-2019 was 3% below the revenue recorded in the year-ago period. Pre-tax profit of the retailer slumped substantially from £600.0 mn recorded in FY15 to £84.60 mn in the FY19, however, on a YoY basis, it has recorded a growth of 27% in the FY19. Post-tax profit for the FY19 was approximately 28.2% above the profit recorded in the year-ago period and stood at £37.3mn. Basic earnings per share before adjusting items declined to 25.4 pence from 27.8 pence recorded in the year-ago period and basic earnings per share recorded a growth of 31.3% on a YoY basis and stood at 2.1 pence per share. However, earnings per share have also plummeted substantially from 29.7 pence in the FY15 to 2.1 pence recorded in the FY19.

During the FY19, group’s ordinary dividend per share was approximately 25.7% below the ordinary dividend per share recorded in the year-ago period, and for the FY19, ordinary dividend per share stood at 13.9 pence per share.

Stock Performance – 1 Yr

Daily Price Chart (as on July 12, 2019), before the market close. (Source: Thomson Reuters)

At the time of writing (before the market close, at 12:51 PM GMT), shares of the MKS were quoting at GBX 208.30 and added 1.16% against the previous closing price. Its shares have registered a 52w high of GBX 302.80 as on July-13-2018 and a 52w low of GBX 185 as on June-14-2019, and at the current trading levels, the stock was trading approximately 32% below its 52w high price level and approximately 11.4% above the 52w low trading level. This indicates a downtrend in the stock price.

Also, the stock is carrying a Beta of 1.14, which indicates that the stock is relatively more volatile against the benchmark index.

At the current trading level, the dividend yield of the stock stood at 6.0% which is considerably above the dividend yield of FTSE 100 index, however, a steep plunge in the stock price over the past couple of months could be a reason behind higher dividend yield.

Price Performance (%)

On a YoY basis, shares of the MKS have delivered a negative price return of approximately 30.6%, and on a year-to-date basis, the stock was down by 12.83% respectively. Also, in the past one month, it was down by approximately 5.8%. This continuous plunge in the stock price reflects a bearish trend in the stock and carries the potential to fall further from the current trading levels.

In the year-ago period, the stock ended 128 times up, 122 times down and remained unchanged for 3 times against their respective closing price and in the past one month, the stock ended 9 times up, 12 times down and remained unchanged for 1 time. One year Up/down ratio in the stock stood at 1.04x, where one month Up/Down ratio in the stock stood at 0.78x.

Simple Moving Average (SMA)

From the SMA standpoint, shares of the MKS were trading considerably below its 30-day, 60-day and 200-day SMA price level, and this is a bearish technical indicator. Also, the stock is trading substantially below its 200-day SMA price level, which generally indicates a long-term downtrend in the stock and the pain could last longer.

Volume Summary

From the volume standpoint, the 5-day average daily volume in the stock was approximately 45.6% below the 30-day average daily volume in the stock traded at the London Stock Exchange. Today’s volume in the stock stood at 2,986,175 with 2,157 traded took place (before the market close).

Relative Strength Index (RSI)

At the current trading level, the 30-day and 14-day daily RSI of the stock were hovering near an oversold zone, which could further strengthen the downtrend in the stock price.

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