M&S mixed bag shows too few signs of changing

As befits a seller of meat-free “sausoyges”, slim-fit T-shirts, vitamin-D loaves and relaxed-fit slacks, Marks and Spencer’s half-year results were a mixed bag. Food sales were up 0.9 per cent on a like-for-like basis but clothing was down 5.5 per cent, while its shares rose 7 per cent on a better then expected 17 per cent fall in pre-tax profit. For shareholders, though, the problem is that this mix looks less deliberate — and less diversifying — than those of rivals Associated British Foods and Next.

M&S bagged a rise in food sales by cutting prices on 400 high-volume lines, focusing more on “family-shopper” fresh produce than on commuter-friendly ready-meals, and creating new products. This food strategy is now being accelerated, while maintaining the gross margin.

But M&S lost more clothing sales by being too slow to market, with sizes and fit profiles that were “misaligned with a family customer profile”, creating inventory problems. Some social media critics even suggested it was not so much the fit as the gender-inclusive fitting rooms that deterred some customers. This clothing strategy is now being addressed, with improved availability of popular sizes and shapes, but at the expense of 25-75 basis points of full-year gross margin.

However, the new strategy is unproven. Improved revenue guidance for the second half only reflects the timing of store closures and although last month’s sales looked a lot stronger, they did for all clothes retailers. Even M&S’s own broker, Shore Capital, had to admit its clothing sales were at best “in line with . . . the market” and there was “a fundamental requirement for . . . trading momentum to improve on a more sustained basis than a better October”. Analysts at broker Liberum also doubted how profitable future clothing sales might be, noting that a £67m working capital outflow in the first half reflected a build-up of seasonal stock, which would be hard to clear at full price. “Track record, and the current highly promotional environment, does not make us overly confident here,” they warned.

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So M&S does not have a sales mix that offers diversification, like ABF’s — where clothing sales at its Primark stores are balanced by the different dynamics of its non-retail grocery, ingredients, agriculture and sugar divisions. Sugar has for some years offset Primark’s growth but, unlike M&S’s clothing business, it shows itself capable of recovery.

Nor does M&S have a sales mix that supports a deliberate transition from bricks and mortar to online, like Next — where a 5.5 per cent fall for in-store clothing sales was balanced by a 12.6 per cent rise in online sales, which now make up more than half the total. M&S’s half-year online sales rose only 0.2 per cent in the period and will account for one-third of the total by 2021 at best.

M&S’s prospects, then, are arguably too much like the people in its fitting rooms: mixed . . . but not necessarily looking any better.

Robey Warshaw: fees pay

Robey Warshaw may be the City’s best kept and best paid secret, writes Kate Burgess. As one of the London Stock Exchange’s many financial and legal advisers on a $27bn tie-up with Refinitiv, it is set for a share of £281m, or more, in advisory fees, according to a circular published on Wednesday.

Robey is one of a bunch of small corporate finance kiosks including Zaoui & Co and Moelis that earn jaw-dropping millions. They do not extend capital or underwrite. They simply advise. It is lucrative work.

Robey’s accounts are admirably transparent if not up to the minute. Three members — Simon Robey (knighted for services to music), Simon Warshaw and Philip Apostolides — withdrew £55m cash for deals done in 2016-17. And that was a lean year for the group. It has since advised on the $50bn Sky-Comcast deal.

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It is hard not to be envious of the simplicity of the business model. As long as revenues grow faster than costs — which are mainly pay for a dozen or so staff — the margins have a beauty of their own. True, revenues are deal-dependent, volatile and not easy to scale up. A good relationship has enduring value but a bad deal may sour executive trust for years. Plenty of ex-bulge bracket bankers bill themselves as consultants and are rarely seen again near Moorgate.

That said, failure is not unrewarded. On Wednesday HKEX revealed a £13m payment to advisers, including Moelis and lawyers, despite abandoning its bid for the LSE this summer.

Partnerships can charge clients what they can get away with and extract as much as they like. But investors this week bashed boards for signing off opaque executive pay deals. Shareholders kick up when CEOs hand themselves million-pound packages and moan like camels at what they see as rewards for failure. Yet they are quiet as mice when boards shell out whopping fees to M&A advisers. LSE investors should consider that when voting on the Refinitiv transaction on November 26.

Taste for pizza

Good news for middle-class parents everywhere: PizzaExpress’s owner plans to inject £80m into the indebted restaurant chain so beloved of Twitter users “with two screaming, hungry kids & a headache”. This will do little to cut its £1.1bn of borrowing. But by seeking to buy back junior bonds that were trading at 26p in the £1, Chinese group Hony shows a much greater appetite for control of the business — even if the inevitable debt restructuring will do little for anyone’s headaches.

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Robey Warshaw: kate.burgess@ft.com



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