Right now I’m analysing some of the most popular companies in the FTSE 100 to establish if they are attractive long-term buy and forget investments.
Today I’m looking at Marks and Spencer (LSE: MKS) (NASDAQOTH: MAKSY.US)
What is the sustainable competitive advantage?
Marks and Spencer is the second most valuable retail brand in the UK, behind peer Tesco. However, even being second gives Marks and Spencer a strong competitive advantage.
That said, Marks and Spencer is somewhat of an anomaly in the British retail landscape, as the firm has been able to sidestep the cut-throat retail price war and aggressive competition that has hit the margins and sales of its peers.
In particular, during the past three years, the average gross and net profit margins of peers Tesco and Sainsbury’s, have been 4% and 3% respectively, as costs are slashed to get customers into stores.
In comparison, Marks and Spencer’s average gross margin for the past three years has been around 8% and the net profit margin has been closer to 5%.
What’s more, unlike peers Sainsbury’s and Morrison, Marks and Spencer has been able to expand internationally.
Company’s long-term outlook?
Marks and Spencer’s first store opened during 1894, so the company has been through plenty of good and bad times, a promising trait for a buy and forget share.
In addition, the company has transitioned well into the age of online shopping, which has gone down well with customers — online sales grew 30% year-on-year for the first quarter of this year.
Still, despite online sales growing rapidly, the company’s reluctance to engage in aggressive price wars, has held back overall sales growth. For example, Marks and Spencer’s sales have only expanded 10% during the past five years, while Tesco and Sainsbury’s, expanded 20% over the same period.
Having said that, it would appear that customers are drawn to the Marks and Spencer brand, thought of as a mark of quality, so customers are willing to pay higher prices.
Furthermore, food and clothing are extremely defensive markets to operate within so the company should see a sustained demand for its goods.
Foolish summary
Marks and Spencer’s dominant position in the UK’s retail landscape, as well as the firms history, wide profit margins and customer loyalty lead me to conclude that overall, Marks and Spencer is a good share to buy and forget.
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In the meantime, please stay tuned for my next FTSE 100 verdict
> Rupert does not own any share mentioned in this article. The Motley Fool owns shares in Tesco.
