Angels vs Devils: Should You Invest In Marks and Spencer Group plc?

Making stock market selections are never black-and-white decisions, and investors often have to plough through a mountain of conflicting arguments before coming to a sound conclusion.

Today I am looking at Marks and Spencer Group (LSE: MKS) (NASDAQOTH: MAKSY.US), and listening to what the angel and the devil on my shoulders have to say about the company.

UK market remains challenging

Make no mistake: Marks and Spencer continues to struggle massively at home. While total UK sales during April-September rose 3.1%, on a like-for-like basis revenues crawled just 0.7% higher. And the retailer remains extremely worried about the state of the British High Street looking ahead.

While consumer confidence appears to be improving, there is little evidence as yet of this translating to increased spending in the retail sector,” the company notes. “Given continued pressure on disposable incomes, we remain cautious about the outlook for the remainder of the year.”

International sales continue to surge

The same cannot be said, however, for the retailer’s performance abroad, where sales growth keeps on rattling higher. Indeed, Marks and Spencer saw turnover increase 8% during the six month period.

The chain has specifically targeted key emerging markets in Asia to establish future growth, and the business reported a 19.1% sales increase from this region alone during April-September. Marks and Spencer opened 26 new overseas stores during the period, taking the total to 431 shops across 53 territories, and plans to open a further 50 by the close of fiscal 2014.

Rags not riches

But while Marks and Spencer’s traditional British image may strike a chord with foreign shoppers, domestic customers continue to shun the firm’s merchandise lines as old-fashioned and stale.

Despite numerous high-profile relaunches, not to mention behind-the-scenes staff reshuffles and resignations, the firm is still at a loss as to how to rescue its beleaguered Womenswear division. Like-for-like clothing sales fell 1.5% in the first half, and only a 2.5% improvement in food revenues rescued the company’s sales performance at home.

Online sales continue to surge

However, the company is proving far more successful in attracting customers to its M& web presence, and actually saw sales here rise 28.5% during April-September. When tallied up against wider market growth of 16%, according to British Retail Consortium figures, Marks and Spencer has made excellent progress online.

Indeed, the firm’s market share of the online clothing space advanced by seven basis points year-on-year to 6.9%. This was helped by a 70% improvement in sales via mobile device, and a blistering 140% rise in sales via tablet PC.

An angelic share selection

So although Marks and Spencer continues to struggle on the high street, I believe that stunning progress in overseas markets — not to mention excellent performance online — is primed to underpin long-term earnings growth. City analysts expect 3% earnings per share growth this year to accelerate to 13% in 2015, and I fully expect earnings expansion to remain robust thereafter.

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