The Surprising Buy Case For Marks and Spencer Plc

Today I am looking at an eye-opening reason why shares in Marks and Spencer (LSE: MKS) (NASDAQOTH: MAKSY.US) fail to fully account for the sterling work made by the retailer in juicy growth regions.

An intelligent approach to overseas growth

For many, Marks and Spencer represents a lingering tale of ongoing woe on the UK High Street. Like-for-like sales advanced just 0.6% in April-June, with a 1.8% growth in food sales again rescuing poor performance in its general merchandise division, where like-for-like sales dropped 1.6% .

Although Marks and Spencer still generates more than nine-tenths of total revenues at home, the company is making massive strides into overseas expansion, a strategy which saw total international sales rise 8.7% last quarter versus 2.7% in the UK. Still, I believe that the amazing progress which the firm has made into foreign climes is yet to be fully prices into its current stock valuation.

The British shopping institution entered eight lucrative new territories last year, and the company now operates across 51 regions spanning the entire globe. And 31 new store openings in the last year took its total overseas shops to 418.

In particular, Marks and Spencer is concentrating on expansion in India, China and the Middle East — including Turkey and Russia — which is delivering spectacular returns. Indeed, the company opened 19 new shops in the Middle East and North Africa and a further 22 in Asia.

Marks and Spencer is placing particular focus on developing its international presence through the franchise model, a sensible route which allows Marks and Spencer to reduce capital outlay and risk whilst also benefiting from the local knowledge of its regional partners. In total, the firm has 17 foreign franchise associates which deliver more than 35% of international sales.

As well, the firm’s multi-channel approach to sales growth also encompasses the particularly-lucrative growth potential of online markets. Since last November has rolled out localised websites in the rapidly-growing internet marketplaces of Germany, Austria, Belgium, Spain, Luxembourg and The Netherlands. The business has also introduced built a localised website in China to supplement its accelerating revenues there.

Although performance at home remains relatively subdued and could be in line for further shocks, I believe that Marks and Spencer’s galloping and multi-layered strategy in foreign markets leaves it in prime position to realise solid earnings growth well into the long term.

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> Royston does not own shares in Marks and Spencer.