Marks & Spencer Group PLC’s (LON:MKS) earnings are unlikely to grow in the long-run following sluggish sales, weak UK consumer spending, store closures and tough competition, according to Goldman Sachs.
Goldman cut its target price on the retailer to 275p from 330p and repeated a ‘sell’ rating.
“M&S is repositioning to cope with both the consumer migration to the online channel and offset the adverse EBIT (underlying earnings) leverage of declining store-based like-for-like sales, primarily through store closures, lower operational expenditure and prices investment,” Goldman said.
Weaker consumer demand
“In the context of a weakening UK consumer, we fear that these structural headwinds will still result in an ex-growth M&S EBIT outlook.”
M&S lowered its long-run UK revenue compound annual growth rate to zero from 1%, reflecting a “weak UK discretionary consumer environment, rapidly evolving online apparel penetration, consequent store closures, and increasing competition from international and online-only apparel retailers”.
Store closures
In November, M&S signalled that it will accelerate stores closures in an effort to make cost savings as it reported a 5.3% decline in profits in the six months to 30 September. UK like-for-like sales fell by 0.3%, including a 0.1% drop in food sales and a 0.7% decline in the struggling clothing and home division.
The group said last year its clothing stores would be closed, moved or remodelled to remove excess space.
As chief executive Steve Rowe ramps up his turnaround plans, M&S is now said to be considering pulling out of dozens of building projects across the UK.
The Mail on Sunday reported the retailer is rethinking its involvement in developments including shopping malls, town centre regeneration projects and residential sites.