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This FTSE 100 dividend share isn’t the only retailer I’d sell right away

The market finally seems to have started warming to the turnaround plans of Marks & Spencer  (LSE: MKS). The FTSE 100 company’s latest leadership team will doubtless be pleased that the shares have rallied strongly from a decade low of near 240p at the tail-end of last year to nearer 290p today.

But in this article, I’ll explain why I believe this 135-year-old business now lacks appeal for long-term investors. And why I’m also bearish on a more youthful retail name, Footasylum  (LSE: FOOT), whose shares have also rallied hard. If I owned these two stocks, I’d be happy to sell them on the back of their recent gains.

You can’t teach an old dog

Marks & Spencer has been on a slippery slope since its profits peaked as long ago as the late 1990s. The company came into the 21st century with a restructuring strategy and recovery plan in progress. By the time of its results for its financial year ended March 2002, it was able to report that restructuring and recovery was “substantially completed.” 

The following year, the message was: “we have re-built the foundations on which this group can grow and prosper.” Just a year later, it revealed that “the initial surge in the recovery of our Clothing and Food business faltered.”

And so it has gone on for 20 years. New management team, new transformation plan, green shoots that fail to develop into sustainable growth. One step forward and two steps back. Will it be different this time? Given the company’s long history of flattering to deceive, the inherent cyclicality of retail, and structural shifts in shopping habits (making the high street a harder place than ever to do business), I don’t hold high hopes.

A rating of 11.7 times forecast current-year earnings holds no appeal for me. Nor does a dividend yield of 6.4%. The company’s desultory dividend record includes two rounds of hefty cuts since the turn of the century.

From pedigree to chum

Footasylum is a relative newcomer to the high street. It was founded in 2005 by David Makin, who had previously been a co-founder of JD Sports back in the early 1980s. He was soon joined at Footasylum by the other JD Sports co-founder, John Wardle.

By the time Footasylum floated in late 2017 (at 165p a share), Wardle was executive chairman and Makin’s daughter, Clare Nesbitt, was chief executive. The prospectus told us that Wardle would be stepping down, and his shoes filled by Barry Brown, who had served as chief executive of JD Sports between 2000 and 2014.

The company’s pedigree attracted a good deal of investor interest, and the share price climbed rapidly to over 250p. However, after three profit warnings, the latest coming last month, the shares hit a new all-time low of under 24p. Then, last Monday, they almost doubled in price in the blink of an eye.

This was on the back of JD Sports issuing a statement that it had acquired an 8.3% interest in Footasylum and was prepared to acquire up to 29.9%. However, it stressed “it is not intending to make an offer.” 

Whatever ultimately happens here, Footasylum is currently struggling and isn’t expected to turn a profit for at least three years. It’s a stock I’d much rather be out of than in, as I see some far more attractive opportunities in the small-cap space.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.