Clothing conundrum continues to dog Marks & Spencer, and Walsh to step down at International Consolidated Airlines

“The FTSE 100 began Thursday on the front foot, gaining 0.5% to top the 7,600 mark as tensions between the US and Iran seemed to cool overnight.

“The Iranian missile attacks on US bases in Iraq, retaliation for the killing of top general Qassem Soleimani, do not appear to have caused major damage and it looks for now as if both sides are taking the opportunity to step back from the precipice of more sustained conflict.

“Corporate news is dominated by the retail sector as the British Retail Consortium said annual sales dipped in 2019 for the first time since 1995, at least Tesco’s sales fell less than expected,” says AJ Bell Investment Director Russ Mould.

Marks & Spencer

Marks & Spencer has been trying to turn its business around for some time. Chief executive Steve Rowe is getting more optimistic in every trading update but the market remains sceptical.

“Having said in November that the transformation plan was running at a pace and scale not seen before in the business, Rowe now says Marks & Spencer has delivered an improved performance in the third quarter and changes made in 2019 have ‘arrested’ the worst of the issues seen in its first-half period.

“However, the turnaround is far from complete as the clothing proposition is still spluttering and a key concern is that its online sales growth is significantly lagging much of the peer group.

“When someone like Next can issue very strong online clothing sales growth, why isn’t Marks & Spencer doing the same? It has a strong brand and significant scale, yet one negative point is that its distribution capabilities seem to be letting the side down. One would expect a lot more money to be invested into distribution and warehouse in the coming years.

“Chairman Archie Norman hasn’t been afraid to make significant personnel changes to the business in order to find the right team, but it remains a long road to travel before we can truly declare a successful turnaround of Marks & Spencer.

“It must fix stock availability problems, reduce the size of its store estate, improve distribution capabilities, sharpen the online proposition and make sure the food joint venture with Ocado is perfectly executed.

“At some point it is feasible to suggest Marks & Spencer could be a much stronger business. You just need to keep waiting while all the problems are ironed out.”

International Consolidated Airlines

“Around a fifth of FTSE 100 companies announced changes at the top in 2019 and just a few days into 2020 another of the UK’s top executives has announced plans to depart.

International Consolidated Airlines boss Willie Walsh is set to leave in the summer joining a mass exodus which has raised fears CEOs are getting out while the going is good.

“Walsh is one of the UK’s longest serving chief executives having been in post for nearly 15 years. When he took over, the business was just plain old British Airways and it was his big strategic move to merge with Spanish carrier Iberia a decade ago.

“The combative Walsh has faced down several significant challenges over the course of his tenure, including the financial crisis, industrial disputes as he looked to make efficiencies, growing competition and volatile fuel costs.

“In this context a total return since taking over in October 2005 of 165%, somewhat better than the wider market, represents a more than respectable showing.

“The fact he is being replaced by the current head of Iberia Luis Gallego, rather than British Airways boss Alex Cruz, could reflect the fact that Cruz faced the airline’s first pilots’ strike in September last year.

“It will be interesting to see if the pendulum swings towards prioritising growth at Iberia under Gallego as the impact of Brexit on the industry begins to feed through.”

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

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.