There's been a negative reaction to these annual results as Marks fleshes out a huge cash call.
The full-year results give proof, if it were needed, that Marks & Spencer (LSE:MKS) required a significant shot in the arm to give it relevance in the modern day.
Unappealing and older stores have long been a drag on both revenues and indeed the company's image, accompanied by a clothing business which has been in the doldrums without a fresh identity.
Even after an attempt to inject life into clothing sales, the company has suffered from poor availability of some lines, with the supply chain clearly in need of a shake-up.
Meanwhile, even the Food business, which has been the jewel in the crown for some considerable time, has shown signs of slowing growth, and the sheer scale and complexity of the planned transformation will need to bear the additional challenge of the Ocado (LSE:OCDO) joint venture.
Yet there are also positive signs as M&S transforms apace. The pre-tax profit figure grew by 27% and is marginally ahead of expectations, net debt has reduced by some 15% over the period, and the basic earnings per share number has shown considerable improvement.
Source: TradingView Past performance is not a guide to future performance
As the costs of the transformation, let alone wider competitive pressures, begin to bite, the company prudently cut the dividend as previously announced, and even after this reduction the yield is still likely to be in the region of a healthy 5%. The reshaping and refurbishment of the store portfolio, coupled with a better handle on stock availability, should also bear fruit in due course.
If there were a real requirement for M&S, however, it would be to consolidate its food offering, while strengthening its online presence to give it security and relevance in the new digital age.
The Ocado deal could provide that answer. It remains to be seen whether the high price, which will be largely funded by a £601 million rights issue*, is justified, but there is little doubt that there is much potential for the tie-up if executed correctly.
Amid all the changes, the shares have also been under pressure, having dipped 10% over the last year, as compared to a 7% decline for the wider FTSE 100 index. The last quarter alone has seen a 7% drop in the price, and it may well be that it is far too early to hang out the bunting on Marks & Spencer's aggressive modernisation ambitions.
It seems likely that investors will continue to be split down the middle on prospects, until such time as any benefits begin to shine through. As such, the market consensus of the shares as a ‘hold’ will probably remain in place for the time being.
*Shareholders can subscribe for one new M&S rights share at 185p for every five shares they own. The deadline is 11am on 12 June. Dealing in the nil-paid shares will begin on 29 May. The cash call is expected to raise £570.7 million net of all costs.
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