Marks & Spencer's sales climb to nearly £10 billion, but there's no dividend hike.
This morning, iconic retailer Marks & Spencer (LSE: MKS) released its full-year results. Alas, despite rising sales and steady earnings, M&S failed to lift its dividend payout. Even so, its shares offer value, especially to dividend-seekers.
M&S = margins and sales
In the year to 31 March 2012, group sales rose 2% to over £9.9 billion. This was largely thanks to UK sales rising 1.5%, driven by food sales up 3.9% and clothing sales up 0.2%. However, in this new age of austerity, UK home sales tumbled by a tenth (10%).
As for like-for-like (LFL) sales -- the retail industry's preferred growth measure -- these rose a mere 0.3% in the group's home market. While LFL food sales rose 2.1%, sales of general merchandise dipped 1.8%.
M&S multi-channel sales -- from online, telephone and mobile transactions -- climbed by an impressive 18% to £559 million, while international sales rose by nearly 6%.
In other words, this is a now-familiar tale of weak UK sales boosted by stronger growth overseas. Indeed, international sales climbed about £1,066 million in 2011-12, which is almost 11% of the total.
However, like many retailers, M&S has had to discount prices in order to shift goods. As a result, its UK gross margin dropped to 40.8% from 41.1%, down 30 basis points. Also, UK operating costs rose by 1.5% to nearly £3 billion in the year, largely due to inflationary pressures and a 13% increase in marketing spend.
What's more, the FTSE 100 firm managed to maintain its market shares of 11.7% in clothing and 3.8% in food and drink.
No dividend hike, but lower debt
At M&S, underlying profit before tax (which excludes one-off charges and gains) dipped 1% to £706 million, which is pretty good in this weak retail environment. However, unadjusted profit before tax dropped nearly a sixth (16%) to £658 million.
Thus, while underlying earnings per share (eps) crept up to 34.9p from 34.8p, basic eps dived 16% to 32.5p. Consequently, the full-year dividend was held at 17p per share, thanks to a final dividend of 10.8p.
Encouragingly, net debt dropped to £1.86 billion from £1.9 billion a year earlier, down 2%.
Marc Bolland, M&S chief executive, said of these results:
"Marks & Spencer performed well in a challenging economic environment, growing group sales by 2% and holding market share. We also made good progress with our strategic plans. We managed the business prudently with tight control of costs and capital investment, delivering earnings in line with last year, and substantial efficiency savings in our capital investment plans."
A dividend yield of 5.3%
In 2011-12, M&S opened 37 new overseas stores, but plans to accelerate this to 100 openings per year. Also, it launched websites in France and the Republic of Ireland, and aims to have 10 websites up and running by the end of the year.
Even so, the big disappointment today will be the failure of M&S to raise its dividend. In fact, at 17p, it is lower than the payout in 2006-07, as my table shows:
| Year | Dividend (p) | Change |
|---|
| 2011/12 | 17.0 | 0.0% |
| 2010/11 | 17.0 | 13.3% |
| 2009/10 | 15.0 | 0.0% |
| 2008/09 | 15.0 | -33.3% |
| 2007/08 | 22.5 | 23.0% |
| 2006/07 | 18.3 | 30.7% |
| 2005/06 | 14.0 | 15.7% |
| 2004/05 | 12.1 | 5.2% |
| 2003/04 | 11.5 | 9.5% |
| 2002/03 | 10.5 | 10.5% |
| 2001/02 | 9.5 | 5.6% |
| 2000/01 | 9.0 | N/A |
As you can see, M&S paid a dividend of 14p a share in 2005-06 and, six years later, this payout stands at 17p. That's a rise of 21% in six years, which amounts to compound growth of just 3.3% a year.
As I write, M&S shares trade at 339.6p, barely changed on the day, which values the FTSE 100 member at more than £5.4 billion. At this price, they trade on a forward price-to-earnings ratio of 9.6 and offer a prospective dividend yield of 5.3%, covered twice.
On balance -- and given that Marks & Spencer is growing slowly at home and strongly abroad -- I think these fundamentals suggest there is value to be had from M&S shares. Therefore, I have added the retailer to my personal watch list of potential bargain buys.
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> Cliff does not own shares in Marks & Spencer.
