Shares in Marks & Spencer were on the up today on the back of strong first half results.
Stuart Rose, the Marks & Spencer
(LSE: MKS)
CEO, continues to deliver the goods. Today's interim results were impressive. Adjusted pre-tax profits jumped 32% to £405m while the interim dividend is up 31% to 6.3p a share.
But the most striking number was second half like-for-like sales which climbed 6.4% in the second quarter. That figure is all the more impressive when you remember that high street rival Next
(LSE: NXT)
said in September that its like-for-like sales in stores had fallen 7.5%.
M&S's strong performance has been partly driven by modernised stores. An improved range, especially in womenswear, along with lower prices have also made a big difference. Price deflation in the first half was 5%.
What's more, M&S thinks it can continue to grow. More stores will be modernised or relocated, and the company also wants to increase its presence in out of town locations. On top of that, M&S is investing in more specialist staff in areas such as shoes.
So are the shares worth buying?
I have to admit that I didn't expect Stuart Rose to perform as well as he has. In hindsight, I wish I had bought shares a year ago when they were trading around 430p. After today's 5% rise, the share price has hit a record high of 690p.
So Rose has done very well and you can't rule out further triumphs. But I do have a couple of concerns. Firstly, costs are up 11.3%. That's partly due to expansion, but higher energy costs and rents have also made a difference. Secondly, M&S is increasing its floor space when its rivals, such as Tesco
(LSE: TSCO)
and Next, are doing the same thing. Surely the big retail chains can't all keep expanding forever?
M&S is now trading on a price/earnings ratio for this year of around 17. Given the concerns I've outlined above, it doesn't seem like compelling value to me.
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