Marks & Spencer Group PLC’s (LON:MKS) plans are credible and coherent, according to a City broker.
The retailer, which slumped to a full-year loss after the pandemic severely affected its Clothing & Home (C&H) segment, is pinning its future on online plans.
Although sales in the division tumbled 31%, online performance climbed 54% with active customers reaching 9mln. Food was up 1% helped by the closure of hospitality and restrictions on movement during lockdowns.
Looking ahead, M&S is targeting 40% of C&H revenue to be from e-commerce in three years, with chief executive Steve Rowe telling reporters it could even reach 50%.
He added the company is being prudent in reviewing the store estate, Reuters reported.
The FTSE 250 group now plans to have 180 full-line stores, down from 254 at the end of February.
Of these, 100 will be flagships, while 80 stores will be called ‘core’, adding 15 on the present 65 outlets.
Around 110 sites will see a ‘rotation’, which implies several outcomes including the closure of 30 outlets, relocation and consolidation involving 45 food-only outlets with the balance making up the new prime and core stores.
The plan comes with £268mln of depreciation and amortisation charges to speed up the plan and £260mln costs for closures.
Beyond the UK, M&S is applying the same principles in international segments but Brexit is proving a headache because of exports in Ireland and continental Europe.
“With a complementary working and improving online capability (14% C&H margin), in food and non-food too, M&S is emerging as fit for purpose, reflected in the most optimistic overall commentary from management for some time,” analysts at house broker Shore Capital commented.
Meanwhile, Peel Hunt raised the target price from 120p to 150p and said the company’s optimism is “credible” while the plan is “coherent”.
“It’s just about delivering it now, which won’t be easy and conditions are ever-changing,” the broker commented.
“But a firmer base is there and that justifies a higher valuation than we’d initially felt, although unfortunately the shares have got there first so it’s just a ‘hold’.”
The update has been well-received by the market, with shares surging 7% to 167.48p on Wednesday at noon.