All analysts agree that it has been a terrible time for most high street retail stocks, and their share prices have reflected that for some time. A tale of two retailers, which was written in May 2020, shows how badly hit Marks and Spencer (LSE: MKS) was at the end of the first lockdown. It was then at 89p.
In recent news, Marks and Spencer – which suffered a terrible slump in clothing and home sales over the Christmas period with revenues down 25.1% year on year – is acquiring the Jaeger brand.
Richard Price, who joined M&S from Tesco last year as head of clothing and home, said last week: “We have bought the Jaeger brand and are in the final stages of agreeing the purchase of product and supporting marketing assets from the administrators of Jaeger Retail” according to a report in last Monday’s Financial Times.
Let’s be honest: all high-street retailers have a problem with sales when the government closes the doors…
Meanwhile, this acquisition follows on from the 50% stake in its joint venture with Ocado that is helping to extend its food reach.
Signs maybe of a coherent investment strategy designed to leverage online and brand familiarity? I think Jaeger is a good fit as long as Marks and Spencer doesn’t devalue the brand, as it still has lots of loyal followers who will pay a premium for the quality. In my view, Richard Price has the opportunity to rectify the mistakes made with the Per Una acquisition.
Comfortingly, its food shops are busy, and the queues outside are evidence of the offering being valued. In the days before Christmas, it was noticeable that the shops themselves felt well regulated, which gave reassurance to the monied older customers.
At the end of the day, a lot of high street retail stocks will likely fail, but – as Amazon has shown with its relatively tentative first steps into the high street – well-run retailers will continue to have a place in the shopping malls and surviving high streets. M&S chairman Archie Norman has a good reputation and seems to be developing a strong team.
Trading at £1.90 this time last year, and – as mentioned earlier – 89p in May, Marks and Spencer shares appear to represent cautiously good value at the current £1.35, with the potential to reach £1.79 based on cash flow projections.
Its current price to book ratio is roughly 1. This means that its assets are worth the share price alone, not taking into account any potential future earnings, including those returns from the Ocado investment.
If you aren’t convinced by my arguments for Marks and Spencer, have a look at this Motley Fool article concerning Associated British Foods, which as the owner of Primark should from a return to the high street. This is a company that saw revenues reduced by 12% and yet still returned a healthy profit of in excess of £1,024m.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Michael Breen has shares in Marks and Spencer. The Motley Fool UK has recommended Associated British Foods and Tesco. 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.