Is Halfords Group plc Now A Better Buy Than Marks and Spencer Group Plc?

Is the departure of Halfords Group plc (LON:HFD) CEO a buying opportunity, or should you stick with Marks and Spencer Group Plc (LON:MKS)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Shares in Halfords Group (LSE: HFD) are down nearly 7% as I write, thanks to news that the firm’s chief executive, Matt Davies, is leaving to run Tesco’s UK business.

It’s been a disappointing morning for Marks and Spencer Group (LSE: MKS) (NASDAQOTH: MAKSY.US) shareholders, too — shares in the high street stalwart are down by 4% following a pretty dismal Christmas trading update.

Yet the two situations are quite different.

Halfords’ strategy appears to be on track. Cycling and leisure sales are booming, and the firm is adapting its car strategy to reflect the reality that most people don’t work on their own cars any more.

The departure of Mr Davies, while disappointing, shouldn’t have any effect on the near-term performance of the business.

In contrast, Marks and Spencer’s like-for-like clothing sales fell by a whopping 5.8% during the third quarter, missing analysts’ expectations for a more modest 3% decline.

The firm blamed the warm weather and the chaotic roll-out of its new distribution centre in December, but in my view these problems are just being used to disguise the underlying trend, which is that clothing sales keep falling.

A 2.8% increase in Food sales is probably the only reason M&S managed to avoid a profit warning this morning, but even here, I have concerns. Food sales from stores open more than one year only rose by 0.1% during the third quarter, which included the key Christmas period.

During the same period last year, these like-for-like Food sales rose by 1.6%, suggesting to me that M&S Food growth may be tailing off.

Today’s best buy?                                         

Which of these two retailers makes the best buy, in today’s market?

Here’s how the two compare, using the latest City forecasts:

2015 forecast

Marks and Spencer


Earnings per share growth






Prospective yield



Both companies have similar valuations, but even before today’s update, Marks and Spencer was expected to report a 2% fall in earnings for the current financial year, which ends in March.

Although M&S is expected to increase its dividend by 4%, this could now be a struggle.

Halfords, in contrast, is expected to report a solid 5.3% increase in earnings per share, along with a 7.8% dividend hike that would take the firm’s payout up to 15.4p per share.

M&S expects cost savings to help contribute to its profits this year, but I’d prefer Halfords’ mixture of higher profit margins and rising earnings: in my view, Halfords is clearly a better buy than Marks and Spencer in today’s market.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Roland Head owns shares in Tesco. The Motley Fool UK owns shares in Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Should I invest in the FTSE 100 – or try to beat it?

Our writer has the option of investing in a FTSE 100 tracker fund. So why does he choose to buy…

Read more »

Young black woman walking in Central London for shopping
Investing Articles

£1,500 to invest in a Stocks and Shares ISA? Here’s how I’d do it

Our writer has been investing in his Stocks and Shares ISA. Here he details how he could put £1,500 in…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

2 top FTSE 100 shares I’d buy before the market rebounds!

Christopher Ruane identifies a pair of FTSE 100 shares that have both tumbled in the past year and that he…

Read more »

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

Here’s why the next bull market may have already begun

The UK stock market has taken the Bank of England's interest rate hike in its stride and green shoots suggest…

Read more »

Gold medal
Investing Articles

No contest! Here’s my stock of the week

An update from this company offered some relief from the economic gloom. It's this Fool's stock of the week.

Read more »

Cogs turning against each other
Investing Articles

Scottish Mortgage shares are back on the rise: is now the time to jump onboard?

Scottish Mortgage shares have risen over 25% in the past 30 days. This Fool takes a look at why and…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Why do Lloyds shares seem so cheap?

Lloyds shares have been losing ground and now look cheap on some valuations. So why has our writer removed the…

Read more »

Investing Articles

How to invest in shares to help beat inflation

Soaring prices could well outstrip our investing returns this year. I think it's more important to find shares to beat…

Read more »