Here’s a FTSE 250 Christmas sales winner I’d buy, and a loser I’d avoid

The festive season has been disappointing for one of these two mid-cap stocks, but very healthy for the other.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The UK high street has suffered a weak year, shaken by the repeating threat of a no-deal Brexit. According to the British Retail Consortium, total sales were down 0.1%, compared to a 1.2% rise in 2018.

Food and clothes

But Marks & Spencer (LSE: MKS) looks like it’s heading for worse than that, with sales in the Christmas quarter falling 0.6% in the UK, and by 2.3% internationally. There’s some small comfort in a 0.2% rise in UK like-for-like sales, though that was driven by a 1.4% gain in food sales — as is becoming all too familiar, clothing and home goods sales declined again, by 1.7% this time on a like-for-like basis, and by 3.7% in total.

Chief executive Steve Rowe told us of “an improved performance in Q3,” but also spoke of “a challenging trading environment in the lead up to Christmas.” He added that “the changes we made earlier in the year in Clothing have arrested the worst of the issues of the first six months and we are progressively building a much stronger team for the future.” But don’t we hear something like that almost every time M&S reports?

Although full-year expectations are unchanged overall, gross margins are “expected to be around [the] lower end of guidance.”

The market was unenthused, and the shares dropped 9% in morning trading — and they’re down 65% since a peak in May 2015. I know M&S is in its latest restructuring phase, and its recently announced plan to move into the (potentially lucrative but very competitive) active fashion business might prove a turning point. But I’ve seen too many M&S turnaround plans over the years to be tempted.

Booze

Meanwhile, pubs, bars and restaurants operator Mitchells & Butlers (LSE: MAB) enjoyed a more successful festive season, reporting like-for-like sales growth of 5.6% over the core three-week period, with first-quarter like-for-like up 3.5%.

This impressive performance included “strong performances on all of the key festive days,” with food sales up 3% and drink sales up 1.8%. I can’t say I’m too surprised, because the Brexit antics of our politicians in December would be enough to drive anyone to drink — and had that effect on me more than once.

The company is continuing to invest in its chain of establishments, with 81 conversions and remodels in the year to date, and one new outlet opened.

Having been in the doldrums for several years, the Mitchells & Butlers share price has been performing remarkably well in the latter half of 2019 — and from a low point for the year in May, we’ve seen a 93% rise. But after that surge, is it still a buy?

M&B has been through a troubled period and is in the process of rebuilding itself. Investor confidence ebbed so low that in 2017 the shares were trading on a P/E as weak as around seven, and after last year’s price recovery we’re now looking at a forward multiple of a bit over 11.

The downside for now is that dividends have not yet been reintroduced after having been suspended during the crisis years — but that should come.

These days I insist on seeing a real tangible turnaround from a recovery prospect before I’ll consider it, and I’m seeing that here. M&B is a cautious buy for me.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft 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.

More on Investing Articles

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »