Retail: Still Tough on the High Street

A curious thing happened when Marks & Spencer and Mothercare announced trading updates on the same day

Rodney Hobson 11 April, 2014 | 12:21PM
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A curious thing happened when Marks & Spencer (MKS) and Mothercare (MTC) announced trading updates on the same day. Shares in both companies shot higher but only M&S fell back sharply before the day was out.

I don’t hold shares in either company but if I had to choose between them I would opt for M&S. I’m not in the least impressed by its Leading Ladies advertising campaign. If Twiggy couldn’t revive the clothing sales then I can’t see this having much impact. However, the picture has improved a little and with Easter falling into the second quarter of the calendar year the next figures should be better.

Margins are falling and M&S is still getting squeezed but there are at least straws one can clutch at, not least a yield of 3.8%. I cannot yet see much glimmer of light at Mothercare, where the dividend is suspended.

Like-for-like sales have continued to fall despite even heavier discounting than at M&S as Mothercare feels the squeeze between budget and quality more strongly. To say it is on track to hit annual profit forecasts is not much consolation when you remember that forecasts were lowered after a profit warning in December.

The rise in the share price was a chance to get out. Mothercare shares have already slipped back as reality kicks in.

Elsewhere in retailing, WH Smith (SMWH) chief executive Stephen Clarke has continued where his highly successful predecessor Kate Swann left off by announcing higher profits from lower sales. We’ve been used to Smith’s retrenchment on the High Street but it was disappointing that travel stores – the ones at stations and airports – also saw a slight decline in like-for-like sales. Cutting costs cannot compensate for lower sales indefinitely.

Nonetheless, Smith is highly cash generative and the interim dividend is increased. The shares are not cheap but they have fallen back this week. They look a better prospect than M&S or Mothercare.

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.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Marks & Spencer Group PLC379.40 GBX0.32Rating
Mothercare PLC4.01 GBX-0.99
WH Smith PLC1,178.00 GBX0.68

About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.

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