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.
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.
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