Retail institution Marks and Spencer (LSE: MKS) dominated the headlines in Thursday business after announcing that Marc Bolland would be stepping down from his role as chief executive.
Bolland – who has been in charge of the business for the past six years – will be handing over the reins to Steve Rowe, executive director of M&S’s General Merchandise division, from 2 April.
Fashion lines fail to spark
Marks and Spencer’s inability to get demand for its womenswear firing again will perhaps be considered a major failure of Bolland’s time at the helm. Despite introducing new clothing lines, shuffling design teams and revamping the marketing strategy, M&S has simply failed to shake off its reputation as a purveyor of outdated and unfashionable togs.
The London business saw a sales rise for the first time in five years at the start of last year, but the impact of intense competition from on-trend rivals like NEXT and River Island has pushed sales to the downside once again.
Indeed, Marks and Spencer announced today that like-for-like General Merchandise sales had slumped 5.8% during the 13 weeks to Boxing Day, a particularly poor result given the soft comparables of a year ago. The business put the poor performance down to mild weather and problems with stock availability.
Plenty of growth levers
But while M&S still has some way to go to get its clothing divisions firing again, I reckon there’s plenty for Bolland to be proud of during his tenure as CEO.
The company’s Food division continues to pull up trees despite the hugely-competitive marketplace, and like-for-like sales grew for their 25th successive quarter up to Boxing Day – a 0.4% uptick was helped by record revenues during the Yuletide period.
And this trend looks set to continue as the business invests heavily in its product ranges and continues expanding its Simply Food store network.
On top of this, Bolland has also been the architect of the company’s huge expansion abroad. While it’s true that challenging macroeconomic factors have caused M&S to scale back its near-term revenue expectations, the firm’s increased exposure to hot markets like China and India should deliver strong returns in the years ahead.
Meanwhile, the strategy of resisting the massive discounting of its rivals may be crimping sales in the near term, but is critical in helping to defend margins and keep earnings on a upward keel. Indeed, the business today advised that General Merchandise gross margins should register at the top end of the guided range of +200-250 basis points for the current year.
So what does the City think?
Well the City certainly thinks Bolland’s work should continue to deliver decent returns, in the medium term at least. Earnings advances of 8% and 7% are predicted for the years to March 2016 and 2017, respectively, leaving the company dealing on attractive P/E ratings of 14 times and 13.1 times for these years.
On top of this, projected dividends of 19.1p per share for 2016 and 20.7p for 2017 produce chunky yields of 3.8% and 4.2%, respectively.
The appointment of Steve Rowe is a canny move in my opinion. His roaring success at the Food division and unrivalled experience at the company make him the obvious choice to take the hot seat. Under his stewardship I believe the retail giant will remain in great shape to deliver stellar returns in the years to come.
