Marks & Spencer's endless turnaround and a pat on the head for Pets at Home

“Taking its cue from a strong showing on Wall Street and a rapid reversal of sterling’s initial gains in response to Theresa May’s ‘bold’ new Brexit plan overnight, the FTSE 100 is 0.25% higher at 7,347.19. Royal Mail becomes the latest UK stock to cut its dividend, but the market responds positively. This news had been expected in the post for some time and the company is being applauded for biting the bullet. Now it needs to get on with delivery of its refreshed strategy,” says AJ Bell Investment Director Russ Mould.

Marks & Spencer

“Some stocks feel like they are permanently in turnaround mode and high street stalwart Marks & Spencer certainly falls into that category.

“A succession of chief executives have tried and largely failed to restore its clothing division to former glories even if the food business has been a relative light amid the gloom.

“Little wonder then that investors’ patience is starting to wear thin as these latest full year results see performance constrained by its restructuring efforts.

“While the latest incumbent of the CEO’s seat, Steve Rowe, says the company is judging itself as much on the pace of change as trading outcomes, the market clearly sees things a little differently.

“The numbers are also somewhat overshadowed by the £600m rights issue being used to finance its joint venture with Ocado.

“This bold strategic step has not proved popular so far and necessitated the trailed cut to the full year dividend. While its food arm has done well, it is not really a supermarket, and this does beg questions of how it will translate to an online delivery model which most people currently use for their weekly shop.

“Still, this enduring retail brand needed to do something to remain relevant to today’s shoppers, time will tell if this was the right response.”

Pets at Home

“Retail businesses have to balance the volume of products they sell against the price they sell them at.

“Pet care outfit Pets at Home recently tilted the scales away from price to volume in its stores. It has been rewarded with like-for-like sales growth as well as a slightly better-than-expected full year performance for the group as a whole, earning itself a pat on the head from investors.

“Though inevitably, while the discount prices have been lapped up by customers, they have also dogged margins.

“In theory this proposition should do well, Britons love their pets and are likely to be willing to part with hard-earned cash to keep them healthy, well-fed and comfortable.

“In reality the company has been all over the place since it was let off the leash at its IPO in 2014 – the substantial borrowings which it carried from the outset didn’t help – and they are still tagged some way below the 245p they floated at.

“Pets at Home is not alone in having spotted the potential in this space and it has faced competitive threats from online players and discount supermarkets.

“The firm’s joint venture vet practices also aren’t expected to be profitable for a number of years and a shortage of veterinary practitioners is pushing up vet salaries.

“Today’s results are a step in the right direction, but there is more to do to earn the market’s full approval.”

These articles are for information purposes only and are not a personal recommendation or advice.