Marks & Spencer Group PLC’s (LON:MKS) flagging clothes business will be centre stage again with its full year results tomorrow.
The retailer has been shaking up its management team and overhauling the business in an effort to turn it around but so far with little apparent success.
A first quarterly rise in underlying clothing and homewares sales in nearly two years in the three months to December is predicted to give way to another drop in the last three months.
Steve Rowe, chief executive, has warned fourth quarter numbers would be adversely affected by a later Easter and a poor quarter has already been pencilled in by analysts.
Even so, Rowe, who took over the reins from Marc Bolland in January 2016, still has a lot of goodwill in the markets, not least because at 389p currently M&S shares are up 11% this year so far.
Fixing the struggling clothing arm is his “number one priority” and he has started to improve the quality of product ranges and lower prices.
HSBC said these initiatives come at a “significant cost” of between £500mln to £550mln but were “necessary” to resuscitate the clothing division.
“The value of these investments will be enhanced by new management appointments… ,” it said.
Earlier this month, the retailer poached Jill McDonald, the boss of bicycle and car parts retailer Halfords, to lead the clothing business.
Later that same week M&S announced it had taken on former Asda chief executive, Archie Norman, as its new chairman.
Norman helped to turnaround Asda in the 1990s and has also served as chairman of ITV, Lazards and Hobbycraft and gives M&S a powerful team up top.
HSBC expects like-for-like sales in the clothing arm to turn negative in the fourth quarter, but sees potential for a return to growth from fiscal year 2018 on the back of positive momentum.
Barclays expects underlying pre-tax profit to fall to £596mln from £684.1mln the prior year and an unchanged dividend of 18.7p.
“We would especially be looking for an update on the following: gross margin outlook, sales outlook, UK space reorganisation/international exits and interest/tax assumptions for 2017/18."
Most upbeat is Jefferies, which has raised its price target to 420p though it expects M&S to say it is cautious about the UK macro-economic outlook but optimistic for their improved ranges and strategy.
“We think that as other retailers have already started to pass on significant inflation, weather disruptions aside, we believe M&S will pass on most of the cost inflation.
“Hence we lift our FY18E Clothing & Home gross margin estimate to -30bps and forecast broadly stable PBT of £587mln.”
Kingfisher’s B&Q and Screwfix brands tipped to continue fine form
The fine performance of Kingfisher PLC’s (LON:KGF) B&Q and Screwfix brands is expected to have continued into the first quarter of this year when the DIY group updates the markets on Wednesday.
The UK and Ireland business was the highlight when Kingfisher reported its full-year results back in March, as the French division limped over the line.
Recent data from Barclays has showed a strong performance for the DIY sector in the UK as a whole, and the bank is expecting “healthy” first quarter sales figures.
As for France, Kingfisher made no bones of the fact that there would be no quick-fix for its French operation, so expect to see a continuation of that subdued trading on the other side of the Channel.
Investors will also be keeping an eye out for the progress being made with its “ambitious” One Kingfisher strategy, although given that there was a full update only two months ago there might not be too much to be said.
Elsewhere, the weak sterling has been a problem from a lot of retailers which import products from abroad and Kingfisher is no different.
Earlier this year, chief financial officer Karen Witts said the group could afford to “invest in prices where we need to do so”. It will be interesting to see if this is still the case or if customers can expect to see a hike in prices at their local B&Q.
Wednesday 24 May
Interims: Frutarom Industries (LON:73CL); Britvic Plc (LON:BVIC)
Finals: Mediclinic International Plc (LON:MDC); Vedanta Resources PLC (LON:VED); Pennon Group plc (LON:PNN); Schroder Real Estate IT (LON:SREI); Marks & Spencer Group PLC (LON:MKS); Lombard Risk Management plc (LON:LRM); Great Portland Estates PLC (LON:GPOR); Babcock International Group PLC (LON:BAB); Hogg Robinson Group PLC (LON:HRG)
Trading Statement: Tungsten Corporation (LON:TUNG); Dixons Carphone (LON:DC.); Kingfisher PLC (LON: KGF)