Marks & Spencer is undergoing “far-reaching change”, or so it says, but some things remain familiar. There is always a problem with the clothing ranges.
At the same stage a year ago, M&S confessed that Holly Willoughby’s “must-have” items were a big hit but it hadn’t ordered enough of them. Now it says it’s been stuck with too many slow-moving lines that are “misaligned with a family customer profile”, whatever that means. It’s amazing how the company manages to fall into the same hole so frequently.
The result was a steep 5.5% decline in like-for-like sales on the non-food side in the first half of the year. Even website revenues, which you’d think would be helped by the closure of dozens of small stores, only managed to go sideways.
The other astonishing feature was chief executive Steve Rowe’s admission that the self-help strategy in clothing is 18 months behind schedule – that’s on a revamp plan that has only been running for about two years.
Still, let’s be generous: Rowe’s refrain about “decisive” action has some merit. The food division’s 0.9% improvement in like-for-like sales was a return to form. Costs are being removed on schedule and M&S is halfway through a plan to find £350m of annually repeating savings. And the group has bought 50% of Ocado’s UK retail business, which is a gamble but one that definitely scores on the decisiveness register.
The credibility of the Rowe and Archie Norman double act is intact, in other words. A 17% decline in half-year pre-tax profits to £176m before one-offs looks ugly but it’s too soon to judge a five-year plan.
Equally, though, let’s not cut the duo too much slack. If, after another lap of the clothing track, M&S is still bleating about wrong sizes, wrong fits or wrong quantities, shareholders will rightly despair.
Shopping centre landlord Intu feels the bite
If you want to see real pain in retail-land, look at the landlords – specifically Intu, the owner of the Trafford, Merry Hill and Braehead shopping centres. A little less than two years ago, its rival Hammerson ludicrously proposed buying Intu at a headline price of 250p a share. Share price now? A mere 33p.
The latest whack came as its chief executive, Matthew Roberts, conceded it is “likely” that Intu will have to raise fresh equity to address a heavy debt load that would become unbearable in early 2021 when a big repayment is due.
For good measure, he predicted a fall of 9% in like-for-like rental income for 2019. Company voluntary arrangements, the favoured rent-reduction tool of ailing tenants from Arcadia to Monsoon, are biting.
Intu can sell a few assets, such as centres in Spain. It can also flog stakes in some of its high-profile assets in the UK. But, yes, it is now bleedin’ obvious that shareholders, if they want Intu to survive in recognisable form, will have to dig deep.
All property firms run on debt but Intu’s ratios are wildly out of whack. Borrowings were £4.9bn at the last count while the stock market values the equity at a mere £460m. To get loan-to-value metrics within vaguely normal territory, the company needs to find at least £1bn, City analysts estimate.
Roberts is aiming to refinance within six months and shouldn’t waste a moment. The retailing weather shows no signs of improving and Brexit uncertainty lingers.
Indeed, the market’s appetite for throwing fresh capital at Intu will be revealing. Retail landlords keep saying the worst will soon pass, and we’ll soon discover if anyone believes it.
Softbank’s Masayoshi Son may be sorry, but WeWork is a fiasco
Masayoshi Son at Softbank is “deeply remorseful” about his “mistake” in backing WeWork. And he admits he turned “a blind eye” to the “negative side” of Adam Neumann, the comedy founder of the office-sharing company.
But there will “no change” to the Softbank strategy. Son still reckons he can raise $108bn (£84bn) for a second “Vision” mega investment fund.
He’s free to try and his old friends in Saudi Arabia may even prove supportive. Yet, for conventional investors, the WeWork fiasco surely counts as more than a mistake. It was a humiliation. Son bought into an investment story that, after brief exposure under the spotlight of an initial public offering, was revealed as full of holes.
In the context of Softbank, Wednesday’s $4.6bn write-down on the value of its WeWork investment counts as tolerable. But the damage to Son’s reputation as a supreme investor is surely severe. He’s had brilliant successes, such as Alibaba, the huge Chinese internet retailer, but WeWork will be hard to live down. It was a boring property business – there was nothing visionary about it.