Marks and Spencer share price forecast: would a huge financial toll of coronavirus result in a “lost year” for the UK’s biggest retailer?
08:07, 15 June 2020
The UK’s biggest clothing retailer Marks & Spencer has suffered from a £145m hit on the unsold clothing, piling up in the company’s warehouses. The retailer described the result of the coronavirus lockdowns as a “lost year” for its business.
Steve Rowe, the M&S chief executive, described a “mounting backlog of unsold stock” as one of the biggest challenges arising from the pandemic crisis. Last week the company started a 50 per cent discount “rainbow sale” aiming to get rid of unsold spring/summer fashion collections.
The lockdown measures wiped out the whole season for fashion retailers, with Mark and Spencer’s sales dropping 75 per cent over the past two months. The coronavirus turmoil has forced the 136-year-old giant to proceed with restructuring and business changes more rapidly than it would otherwise have done.
Marks & Spencer Group PLC is currently traded at £120.50, 49 per cent lower than its 52-week high of £236.50 and 63 per cent above its 52-week low price of £73.90. On a calendar year-to-date basis the MKS stock is down 47 per cent.
Marks and Spencer share price analysis: 47 per cent decline since the beginning of 2020
The Marks and Spencer share price has been in a slow decline for several years in a row. The company has been struggling and largely failed in an effort to keep its existing demographic happy and attract younger shoppers, who prefer traditional M&S offering to other brands such as Next with its more efficient e-commerce platform.
The gradual decline in the M&S share price performance eventually resulted in MKS being dropped out of the FTSE 100 index by the end of 2019, just several months before the stock reached its new record low of £74 in mid-March 2020.
Since then we’ve been seeing a moderate rebound in the Marks & Spencer share price but the road back is very hard as the aftermath of the coronavirus seems to have longer and tougher consequences for the retailer, who is on the crossroads between a general retailer and a food retailer at a time when most of its stores are closed.
As of June 10, Marks & Spencer started trading at £120.50, which is 18 per cent above its 50-day moving average price of £97.63 and 33.6 per cent lower than its 200 moving average price of £161.10. The Relative Strength Index (RSI) indicator for MKS shares is currently at around 60. An RSI value of 70 and above is usually considered as overbought and 30 and below as oversold.
What is your sentiment on UK100?
Marks and Spencer stock outlook 2020: never the same again strategy
Sharing its annual financial report, the UK’s notorious retailer Marks & Spencer revealed its profit fell by a fifth, due to the early impact of the coronavirus pandemic. Marks and Spencer’s full-year revenue was £10.18bn with a pre-tax profit of £67.2m including adjusting items of £335.9m, with £212.8m for costs and stock write downs for Covid-19, which represents a decline of 20.2 per cent.
Even after the lockdown eases, a large portion of current stock will remain unsold, and the demand for many product categories is likely to remain weak. The company has to take quick steps to improve its performance.
In April, M&S’s management tried to improve its balance sheet and decided to cancel the dividends for next year, which would help to save £210m straight away. The current company’s earnings per share are 1.3p, which is 48 per cent below its last year numbers. According to Marks & Spencer share price forecast, the EPS would grow on average to 2.1p in 2021.
To combat this difficult situation Marks & Spencer is committed to speed up its restructuring plan, accelerating its “never the same again” transformation programme.
The company’s turnaround priorities include moving forwards with its grocery sales through a new partnership with Ocado, boosting changes to its store estate and making the food supply more efficient. Investors were optimistic about the acquisition of 50 per cent of Ocado Retail, as the virus showed how critical the shift towards online has been for consumers.
As customers stockpiled in the early days of the UK’s lockdown, food like-for-like revenues grew 1.9 per cent and operating profit rose 11.2 per cent, while clothing operating profit dropped by 27 per cent and revenues by 6 per cent.
According to the latest report by the London Stock Exchange, analysing Consumer services/Broadline retailers in the UK, Marks & Spencer lags behind most of its competitors from the market value perspective, but keeps the second position in terms of revenue.
Marks and Spencer share price forecast: what is next for M&S?
According to MarketBeat’s latest Marks and Spencer share price prediction, based on 15 Wall Street analysts offering year-long price targets, the average price target for MKS is £148.60, which represents a 23 per cent increase from the last price of £120.50.
The highest analysts’ price target for the next 12 months is £225, while the lowest expected price is £100.
Currently, Marks & Spencer has two Sell ratings, six Hold ratings and seven Buy ratings, which results in a consensus rating of “Hold”.
Marks and Spencer shares: Buy or Sell
Speaking of the M&S stock forecast in June, we should note that Jefferies International, the independent, global, full-service investment banking firm, upgraded its Marks & Spencer share price forecast to “Buy” (from hold), arguing the underestimated strength of the UK retailer’s food business.
According to Jefferies, the MKS’s clothing and home sector is likely to continue falling down, while the food sector is in progress. They also cut their price target from 230p to 160p based on the under-appreciated potential for improved cash flow.
Jefferies analyst James Grzinic wrote in a note to clients: "We were impressed with MKS' s food progress pre-crisis and are now reassured by its ongoing relevance to UK consumers".