If you want to invest in the High Street, pick food. Former clothing store Marks & Spencer (MKS) demonstrated this for the umpteenth time this week as food sales, which now account for 55% of the business, rose 3.2% in the second quarter to the end of September, while clothing struggled.
The reason is that M&S food has long ago found a niche, offering higher quality at higher prices, while clothing, which used to be a cut above most of the High Street, still cannot find its way, unsure whether to compete with Primark, which is leaping ahead at the cheaper end, or move more upmarket.
It is still early days to condemn the autumn/winter range but one suspects that it has not had the desired impact. I’m no fashion expert but the women’s clothing range at my nearest store looks uninspiring, although that could be because it is not one of the stores blessed with the best selling items that M&S has curiously decided to keep in short supply. This could be yet another much heralded, much advertised disappointment.
I get the feeling that it is only underwear, in which M&S excels (so I’m told) that is keeping womenswear going.
M&S shares jumped on the figures, presumably on account of relief that they were not too bad. The company makes a profit and pays a dividend, my two main criteria for investing, but with a prospective yield of 3.4% and a forward P/E of 15 I can’t rate the shares as anything better than average.
Another disappointment was Wm Morrison, which is also having difficulty in competing with the budget end of the market, in this case Aldi and Lidl. I seriously considered investing in Morrison two or three years ago but felt that the case in favour had not been made to my satisfaction.
Since then sales at the Bradford-based retailer have slid much more than I expected, with the latest figures showing like-for-likes down 2.4% in the 13 weeks to 3 November. Morrison is still playing catch-up in the convenience store sector, which will be expensive with 100 stores opening over the next 14 months, and in online deliveries where it will not get started until January, and then only in Warwickshire. Its Yorkshire heartland takes second place.
Morrison admits to price inflation of 2.5-3%, which means it has lost market share. As an investment, I have to rate it a distant third behind Sainsbury (SBRY), in which I have a major holding, and Tesco (TSCO).
Budget Airline Profits Take Off
Here’s a surprise: Easyjet (EZJ), Ryanair (RYA) and British Airways owner IAG (IAG) have all made announcements this week and the most encouraging one is from IAG, which has long struggled against the budget airline upstarts.
International Airways Group has posted pre-tax profits of €609 million (£507 million) for the three months from July to September, way up from €237 million for the same period in 2012. That puts the group into a €103 million profit for the first nine months of 2013.
That is a fair achievement considering that a €121 million loss had been run up at this stage last year despite the boost from the London Olympics.
The big worry is what is happening at Spanish airline Iberia, which continues to struggle amid the Eurozone economic crisis. Iberia's performance is said to have improved but 0.1% growth in the Spanish economy in the latest quarter does not mark the end of recession there.
Another serious warning comes from Ryanair, which has lost traffic to other low cost airlines and also, ominously, to mainstream carriers that have reduced their fares. A full scale price war over the coming months is inevitable while fuel prices remain high – Brent crude is still above $100.
Fortunes ebb and flow in the airline business, but mostly they ebb. I’m stand well clear.
Is Twitter Another Royal Mail?
To get one IPO wrong can be viewed as misfortune but to misjudge two smacks of carelessness.
I avoided the Royal Mail (RMG) float because I felt, and still feel, that the postal service is a dying industry that will eventually rely on government subsidies. I overlooked the potential value of asset stripping through selling off properties, so at least there will be profits to pay dividends in the short to medium term.
So what does one make of Twitter (TWTR), a company that has never made a profit and is unlikely to for at least a couple of years? Unlike our gullible government, conned out of maximising the share price by the people paid millions for advice, the owners of Twitter kept pushing up the float price ahead of the launch date.
Even so, the shares nearly doubled in the opening minutes, so perhaps another set of advisers was as wrong about the float as I was.
My view, for what it’s worth, is that those punters who sold out of Royal Mail as soon as they could did right and that Twitter shareholders should do likewise. But then, I wouldn’t have bought in the first place.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice.
