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Are Marks and Spencer group plc, N Brown group plc & Mothercare plc set for the same fate as BHS?

The collapse of BHS this week, with the potential loss of 11,000 jobs has sent shockwaves through the UK high street. And less than a day after BHS announced that it had called in the administrators, upmarket tailor Austin Reed has also collapsed into administration with a further 1,000 jobs now under threat.

These two high-profile bankruptcies in such a short space of time have understandably sparked concern among retail investors. The UK retail environment is becoming tougher by the day with online upstarts such as Boohoo and Asos snatching market share from larger, more established traditional bricks-and-mortar competitors.

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Marks and Spencer’s (LSE: MKS) fight to retain market share in a competitive market is well known. The company’s on-going investment in its food business has certainly borne fruit. Indeed, under the previous CEO, Mark Bolland the company’s food sales grew at a rate of around £800m a year. However, at the same time, sales of what used to be called general merchandise (clothing and homewares) declined by around £200m a year. 

Clothing and homewares sales continue to struggle in-store, but the company’s online business is steadily expanding. For the year to 26 March, M&’s sales moved ahead by 8.2%, and cost savings in the food division helped the group report gross margin expansion of around 245 basis points for the year.

So, for the time being the underlying business is solid as growing food sales more than make up for slowing sales elsewhere. City analysts are expecting earnings per share to increase by a steady 4% to 7% per annum over the next three years. The company’s shares currently trade at a forward P/E of 12.5 and support a dividend yield of 4.4%.

Tough trading 

Unfortunately, while Marks looks as if it’s navigating the tough retail environment with ease, the same can’t be said for Mothercare (LSE: MTC) and N Brown (LSE: BWNG).

N Brown is currently trying to transition to a more online-focused business model. Pre-tax profit grew 11% year-on-year in the second half of the company’s last financial year as restructuring unfolded. 

However, management has described sales for the February 2017 year-end as “subdued” and is forecasting that gross margins will contract by 50 to 150 basis points.

Still, City analysts believe that this rough patch won’t last and have pencilled-in earnings per share growth of 6% for the financial year ending 28 February 2017. The shares currently trade at a forward P/E of 11.3 and support a dividend yield of 5.3%

N Brown’s shares have fallen 54% from their five-year high of 591p which was printed at the beginning of 2014.

Struggling to gain traction 

After several brushes with death in the past, Mothercare seemed to be making a recovery under new CEO Mark Newton-Jones, who was appointed chief executive at Mothercare in July 2014. That was until the company reported a 10.8% decline in sales during for the fourth quarter of last year. Most of the slowdown came from international markets while trading in the UK beat expectations. UK sales rose 2.1% marking Mothercare’s eighth consecutive quarter of like-for-like UK sales growth. Online UK sales growth grew by 5.6%.

Further, since the new boss took over Mothercare’s businesses undergone a revolution. Online sales have doubled to around 35% of revenues and margins have improved. Management is confident that this transformation will be enough to return the UK to profit and finally generate some positive returns for investors.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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