Marks & Spencer, Tesco and Morrisons: a rotten day for retailers
Three of Britain’s biggest retailers have reported disappointing sales figures. Ed Bowsher looks at what's going wrong, and whether there is any cheer for investors.
Marks & Spencer (LSE: MKS) is still struggling with its clothing business. We learned today that the retailer had a terrible October. Although things improved a little in December, that was probably due to price-cutting.
M&S wasn't the only retailer to disappoint investors today. Morrisons (LSE: MRW) issued a profits warning, while Tesco (LSE: TSCO) revealed that its pre-Christmas performance was mixed at best.
Let's look at the three retailers in a bit more detail.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
M&S still limping behind Next
But there's no way that I'd buy the shares at the current price of 459p. That's because M&S still hasn't sorted out its longstanding problem with womenswear. Chief executive Marc Bolland had hoped that the latest autumn/winter collection would trigger a turnaround, but there's little sign that's happened.
In fact, we've just seen the tenth quarter in a row of declining clothes sales at M&S. Sales only hit a reasonably decent level thanks to last minute price-cutting. And slashing prices in the run-up to Christmas is a dangerous game only played by desperate retailers.
Yes, it can deliver a short-term boost in sales, but it damages your long-term relationship with customers. They'll be more reluctant to buy next November at full-price, because they'll expect M&S to cut prices in December.
Next, by contrast, only ever cuts prices after Christmas.
As Bryan Roberts at Kantar told Bloomberg: "This has left everyone wondering when the big turnaround is going to materialise. There was a lot of fanfare over the autumn/winter range which obviously hasn't resonated with the public."
A shocker for Morrisons
Morrisons is being hit hard by the rise of Aldi and Lidl, and it's missing out on lots of online sales thanks to being a pure bricks and mortar' retailer. In fairness, Morrisons will start selling food online this year, but I suspect it's going to be a long struggle to catch up with the likes of Tesco and Sainsbury online, and profitability will be even further away.
Unlike M&S, Morrisons' share price has behaved more logically today and fallen by around 10%. That puts the company on a price/earnings ratio of just ten, but I'm still not tempted to buy. Things may well get worse before a recovery eventually comes.
(Admittedly, this is one of those relatively rare occasions where the MoneyWeek team fails to see eye-to-eye my colleague Phil Oakley reckons Morrisons is worth a punt for the patient, based on its potential as a takeover target. He makes the case in this week's issue of MoneyWeek magazine, out tomorrow if you're not already a subscriber, subscribe to MoneyWeek magazine).
And the pain continues at Tesco
Tesco could at least point to a 14% rise in online sales. It also claimed that its newly-refurbished stores were performing better than the rest of its shops.
The big challenge now for Tesco is to figure out what to do with its large out-of-town hypermarkets. Thanks to the rise of online shopping, these stores are in danger of becoming white elephants.
Tesco is trying to deal with this problem by turning the hypermarkets into shopping destinations' with restaurants, yoga classes and more. That sounds like a sensible strategy, but until we get more evidence that it's actually working, I wouldn't want to invest.
And let's not forget that the rise of Aldi and Lidl is also a serious threat at the bottom end of Tesco's range, while Tesco is being squeezed at the top by Waitrose and M&S. Morrisons has almost exactly the same problem.
Why I'm feeling a little bit smug
I also said that Next was my favourite retailer'
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Ed has been a private investor since the mid-90s and has worked as a financial journalist since 2000. He's been employed by several investment websites including Citywire, breakingviews and The Motley Fool, where he was UK editor.
Ed mainly invests in technology shares, pharmaceuticals and smaller companies. He's also a big fan of investment trusts.
Away from work, Ed is a keen theatre goer and loves all things Canadian.
Follow Ed on Twitter
-
Christmas at Chatsworth: review of The Cavendish Hotel at Baslow
MoneyWeek Travel Matthew Partridge gets into the festive spirit at The Cavendish Hotel at Baslow and the Christmas market at Chatsworth
By Dr Matthew Partridge Published
-
Tycoon Truong My Lan on death row over world’s biggest bank fraud
Property tycoon Truong My Lan has been found guilty of a corruption scandal that dwarfs Malaysia’s 1MDB fraud and Sam Bankman-Fried’s crypto scam
By Jane Lewis Published
-
How to profit from rising food prices: which stocks should you invest in?
Tips Food prices are rising – we look at the stocks to avoid and the one to invest in this sector.
By Bruce Packard Published
-
Tesco looks well-placed to ride out the cost of living crisis – investors take note
Analysis Surging inflation is bad news for retailers. But supermarket giant Tesco looks better placed to cope than most, says Rupert Hargreaves.
By Rupert Hargreaves Published
-
Next’s results stand out against a tough retail backdrop
Analysis FTSE 100 retailer Next is dealing well with the tough conditions on the high street, with rising profits and a plan that's working. Rupert Hargreaves looks at the numbers.
By Rupert Hargreaves Published
-
Why Next is the only retailer I’d want to own in my portfolio
News The retail sector is brutally competitive. But high street stalwart Next is exploiting and building on its significant competitive advantages, says Rupert Hargreaves.
By Rupert Hargreaves Published
-
Next shares soar as sales smash expectations – is the stock a buy?
News High street and online retailer Next has reported a big rise in sales and profits. John Stepek looks at its performance and asks if it's worth buying Next shares.
By John Stepek Published
-
Morrisons takeover bid: supermarket is an attractive target for private-equity buyers
News A private-equity group has made an offer for Morrisons, Britain’s fourth-largest supermarket. Other bids are likely to emerge. Matthew Partridge reports.
By Dr Matthew Partridge Last updated
-
Morrisons is just the start – get ready for a private equity feeding frenzy
Analysis The bid to buy the Morrisons supermarket chain is the latest example of UK listed companies being snapped up by private equity groups. It won’t be the last, says John Stepek – we could well see a feeding frenzy before this is all over.
By John Stepek Published
-
Tesco sells its retail subsidiary in Thailand and Malaysia for £8bn
News Tesco has agreed to sell its southeast Asian operations to Thai conglomerate Charoen Pokphand for £8.2bn in cash.
By Dr Matthew Partridge Published