High Street bellwether Marks & Spencer (LON:MKS) has been down-rated to a ‘sell’ by broker Peel Hunt, which is worried over the quality and appeal of its clothing ranges.
Marks’s clothing has been a problem child for some while, but despite better trading conditions and easier comparatives the broker is concerned M&S has again missed its straps.
Negative like-for-like sales (LFL) in the core clothing line in the second half of the year would be a “quite breath-taking indictment of its ranges this season,” said the broker.
At half way Marks said general merchandise (GM) sales including clothing were 0.4% lower than the previous year.
An improvement was expected in the second half but the broker reckons a target of positive like-for-like sales growth is under pressure even with the “infinitely better” trading backdrop.
“We are beginning to wonder if the FY target of positive LFL in GM is under pressure and that could only imply that the expected improvement in LFL in Q2 has not occurred.”
Food remains strong with total sales up by 3.2% and like-for-like sales by 0.3% in its first half.
Peel Hunt said: “Thankfully food remains on an even keel” but warned that the new management team may not keep up the old one’s good work.
The move to a ‘sell’ rating on the stock, having previously been ‘hold’, was accompanies by a drop in the target price to 450p from 530p.
“The bulls point to the strong cash generation as a reason to hold the shares but that will soon come under pressure if forecasts continue to fall and more still if extra capex is required to refresh the stores again.”
Shares lost 1.6%, or 8p, to 491p today.