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M&S boss quits but challenges remain, say analysts

Chief executive Marc Bolland announced plans to retire in April

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M&S is still struggling to breathe new life into its troubled clothing arm

Marks & Spencer chief executive Marc Bolland finally bit the bullet on Thursday after failing to revive the flagging fortunes of its clothing arm.

The “flying Dutchman” announced his plan to retire in April after M&S (LON:MKS) ruefully told the market on Thursday that general merchandise (GM) sales had slumped more than 5% in the three months to Christmas, although food sales did well again.

Shares rose in early trading as investors spotted a chance for the high street bellwether to make a fresh start, although they fell 0.2p to 438.5p in late afternoon trading.

Some analysts welcomed Bolland’s departure, suggesting he had jumped before he was pushed.

Director of retail consultancy Retail Vision John Ibbotson described the division as a “fallen colossus” and said Bolland had failed to reverse years of long-term decline.

“It’s not unreasonable to assume the only time footfall increased in M&S’s clothing departments last month was on ‘Take Back Tuesday’ as people queued to return unwanted Christmas gifts,” he said.

Bolland netted a golden hello of £15mln when he joined six years ago and had an annual salary of £975,000.

He apparently told the board last year of his decision to retire in 2016, but the company chose not to inform the market immediately.

An M&S spokeswoman dismissed suggestions that he was effectively ousted, saying: “That was absolutely not the case. He approached the board last summer and said it was his intention to retire in 2016.”

Other analysts were keen to defend the legacy of the former boss of Morrisons (LON:MRW), pointing to his achievements in food and online.

Shore Capital’s respected retail analysts Clive Black and Darren Shirley said in a note: “Bolland, a distinguished commercial statesman, has done a lot of very good work to fundamentally modernise and reposition M&S to be fit for the future.”

Great heritage

The market also gave a general welcome to the announcement that Steve Rowe, the group’s head of GM and a long-standing member of its top team, would replace Bolland.

Black and Shirley said they liked the fact that Rowe could “possibly connect the great heritage of M&S, where he has worked for 25 years, to a modernised venture to take the future on with energy.”

Investec said Rowe had significant experience across the whole business having also run the food division and store operations historically.

The South African broker’s retail analyst, Kate Calvert, said: “His appointment is likely to be well received in our view.”

But others highlighted challenges and wondered aloud about whether the clothing conundrum was too big even for a seasoned M&S lifer like Rowe to solve.

RBC Capital Markets said it believed there were issues in the fashion business other than unhelpful weather, such as stock availability.

“Also we think M&S, like several other clothing retailers, has educated its customers to wait for sales and we think it could do with more “first price right price” product and more coherent pricing”, RBC said.

RBC analyst Richard Chamberlain said: “We think the bears will focus on the two year soft GM like-for-like result, but we think consensus pre-tax profit expectations will hold today at circa £680mln as expected.”

Schizophrenic

Bolland said GM gross margins were likely to be at the top end of hopes.

But Cantor Fitzgerald said the “unprecedented” margin increases were likely to prompt questions about the quality of the chain’s clothing in the medium term.

The broker’s Freddie George said: “It is also not a given that there will be a recovery in GM sales, which are into their fifth year of negative like-for-likes.

“Since 2008, M&S’s UK track record has been at best under whelming. UK pre-tax profits have declined by a third, International profits have been flat, the dividend has been reduced and net debt remains above £2bn.

“The initiatives to improve the supply chain and IT infrastructure will not, we believe, lead to significant increases in sales or profits over the medium term.”

Retail Vision’s Ibbotson said Rowe was well-respected within the business and could take credit for achieving 12 successive quarters of growth as head of the chain’s food business.

But he added: “Rowe now faces a far tougher challenge as chief executive of what has become a truly schizophrenic empire.

“Solving the puzzle of a business with two divisions heading in opposite directions eluded his predecessor. And it’s unlikely he will be given long to find a solution.”

Quick facts: Marks and Spencer Group PLC

Price: 184.55 GBX

LSE:MKS
Market: LSE
Market Cap: £3.6 billion
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