What’s Telling Me to Buy Marks And Spencer Group Plc Today

Today, I am looking at Marks & Spencer Group (LSE: MKS) (NASDAQOTH: MAKSY.US), and deciding whether to add it to my stocks hamper.

Domestic markets remain out of fashion

The group’s latest interims revealed the difficulties it continues to suffer in its core markets at home, although some improvement here was reported. Total UK sales rose just 2.7% in the April-June period, but on a like-for-like basis these crawled just 0.3% higher.

Performance at its General Merchandise division improved, although like-for-like sales still slumped 1.6% from the same period last year. Still, this was better than the 4.1% fall seen in the whole of 2013. It was down to the company’s Food arm to once again dig the retailer out of the mire, with sales advancing 1.8%. And Marks & Spencer warned that it retains a cautious outlook amid ‘challenging trading conditions‘.

Multi-channel success creating mega excitement

Still, I believe that Marks & Spencer is on the cusp of spectacular growth as its multi-platform sales approach are starting to pay dividends. The firm has taken bold steps to innovate its online offering over the past year, and announced that website sales leapt an incredible 29.9% in the first quarter.

And the retailer’s decision to straddle various sales channels, from online to new sales openings and franchise creation, is helping to drive volumes in juicy overseas. Indeed, international sales rose 8.7% in April-June, and Marks & Spencer said that its international business ‘performed well across most of the markets we trade in, especially in our key markets of India, China and the Middle East.’

Earnings growth to pull dividends higher

City analysts expect the company to put the earnings pressure of recent years behind it during the next couple of years as its transformation plan bears fruit. A 4% expansion in earnings per share for the year ending March 2014 is expected to rise to 11% in the following 12 months.

And the company also trades on a prospective P/E ratio of 14.5, a snip compared with the average of 25.1 for the broader general retailers sector.

A consequence of Marks & Spencer’s improving earnings outlook is that brokers expect the company to resume dividend growth after keeping the full-year payout on hold at 17p for the last three years — dividends of 17.6p and 19p are forecast for 2014 and 2015 respectively.

And these payments offer yields of 3.6% and 3.9%, north of the FTSE 100 average of 3.3%.

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> Royston does not own shares in Marks & Spencer Group.