Marks & Spencer and Pets at Home show resilience while utilities stocks bounce back

“There was a chance that Steve Rowe would leave Marks & Spencer on a sour note, given the pressures on household finances and how that might have hurt sales. Fortunately, the retailer has pleasantly surprised with its full-year results showing resilience which the company arguably lacked before Rowe became the boss,” says Russ Mould, Investment Director at AJ Bell.

“The company has moved back into profit, and free cash flow has soared which has helped bring down net debt. Sadly, there is still no dividend for shareholders, but the direction of travel for the business is promising.

“Food has long been Marks & Spencer’s biggest strength and it has hit on a winning formula with its mixture of food-on-the-go products and items to eat at home which feel like a treat and a good alternative to going to a restaurant. It offers decent quality items, and the store layout and associated promotions successfully encourage people to walk away with more than they originally intended to buy.

“Clothing has been less inspiring but endless strategic changes seem to finally be having some success. It is now a big seller of athleisure and better value products in areas like jeggings and jeans which is helping stock to turn over, rather than having to rely on discounting to shift items.

“Rowe says he’s helped to fix the basics and put the company in a better position. Now it’s the turn of a new leadership team to sustain the positive momentum in the business and that won’t be easy, given the fragile economic backdrop.

“Marks & Spencer has joined a growing list of retailers saying the rest of the year is going to be tricky, particularly as energy bills are set to jump up again in October.

“To make matters worse, it only expects a ‘minimal’ contribution to profit from the Ocado food joint venture. The decision to shut operations in Russia will also remove a source of earnings, and the business will also not receive business rates relief.

“Given how many of the US supermarket companies saw their share prices tank on their latest updates, investors in Marks & Spencer will be breathing a sigh of relief it hasn’t done the same. The fact the shares managed to rise 1% following the results should be taken as a positive, particularly given the gloomy outlook.

“The new leadership team will need to have some creative ideas to keep the tills ringing. They will also need to show the value of the company’s Sparks loyalty scheme. Despite amassing more than 15 million members, is it analysing this data to the best use?

“Sparks must be one of the least appealing loyalty cards with seemingly random offers. One minute you might have money off clothes, the next nothing, but you nearly always get a free pack of Percy Pig sweets which is not compelling enough to make you want to visit its stores.

“Marks & Spencer talks about offering a more personalised customer experience, but there is a long way to go before Sparks is talked about with the same respect as Tesco’s Clubcard in terms of providing valuable customer insight.”

Markets: Pets at Home and Utilities

“The market might have been wrong to doubt the robustness of Pets at Home, judging by its latest results. Prior to publication, its share price had fallen 40% year-to-date amid fears over a drop in consumer spending. Pets at Home’s full-year figures show that pet lovers are still happy to splash the cash on their tabby or poodle. Investors who remained loyal to the company are now getting a big reward in the form of a 36% increase in the final dividend.

“Pets at Home’s 7% share price jump on the news put it at the top of the FTSE 250 risers, closely followed by Drax which bounced back along with SSE in the FTSE 100 from yesterday’s fear-driven sell-off around a potential windfall tax on profits from electricity generators.

“The FTSE 100 advanced 0.4% to 7,516, led by utilities, telecoms and mining stocks – all generous dividend payers, suggesting that people are continuing to rediscover their love of income investments.”

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