Retail institution Marks and Spencer (LSE: MKS) dominated the headlines in Thursday business after announcing that Marc Bolland would be stepping down from his role as chief executive.
Bolland who has been in charge of the business for the past six years will be handing over the reins to Steve Rowe, executive director of M&Ss General Merchandise division, from 2 April.
Fashion lines fail to spark
Marks and Spencers inability to get demand for its womenswearfiring again will perhaps be considered a major failure of Bollands time at the helm. Despite introducing new clothing lines, shuffling design teams and revamping themarketing strategy, M&S has simply failed to shake off its reputation as a purveyorof outdated and unfashionable togs.
The London business saw a sales rise for the first time in five years at the start of last year, but the impact of intense competition from on-trendrivalslike NEXTand River Island has pushed sales to the downside once again.
Indeed, Marks and Spencer announced today that like-for-like General Merchandise sales had slumped 5.8% during the 13 weeks to Boxing Day, a particularly poor result given the soft comparables of a year ago. The business put the poor performance down to mild weather and problems with stock availability.
Plenty of growth levers
But while M&Sstill has some way to go to get its clothing divisions firing again, I reckon theres plenty for Bolland to be proud of during his tenure as CEO.
The companys Food division continues to pull up trees despite the hugely-competitive marketplace, and like-for-like sales grew for their 25th successive quarter up to Boxing Day a 0.4% uptick was helped by record revenues during the Yuletide period.
And this trend looks set to continue as the businessinvests heavily in its product ranges and continues expanding its Simply Food store network.
On top of this, Bolland has also been the architect of the companys huge expansion abroad. While its true that challenging macroeconomic factors have caused M&Sto scale back its near-term revenue expectations, the firms increased exposure to hot markets like China and India should deliver strongreturns in the years ahead.
Meanwhile, the strategy of resisting the massive discounting of its rivals may be crimpingsales in the near term, but is critical in helping to defend margins and keep earnings on a upward keel. Indeed, the business today advised that General Merchandise gross margins should register at the top end of the guided range of +200-250 basis points for the current year.
So what does the City think?
Well the City certainly thinks Bollands work should continue to deliver decent returns, in the medium term at least. Earnings advances of 8% and 7% are predicted for the years toMarch 2016 and 2017, respectively, leaving the company dealing on attractive P/E ratings of 14 times and 13.1 times for these years.
On top of this, projected dividends of 19.1p per share for 2016 and 20.7p for 2017 produce chunky yields of 3.8% and 4.2%, respectively.
The appointment of Steve Rowe is a canny move in my opinion. His roaring success at theFood division andunrivalled experience at the companymakehim the obvious choice to take the hot seat. Under his stewardship I believe the retail giant will remain in great shape to deliver stellar returns in the years to come.
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