Should I Buy Marks & Spencer?

Published in Company Comment on 30 October 2012

Harvey Jones sizes up Marks & Spencer (LSE: MKS).

It's time to go shopping for shares again, but where to start? Motor insurance warship Admiral Group (LSE: ADM)? Pipeline prince National Grid (LSE: NG)? Or major oil major Royal Dutch Shell (LSE: RDSB)?

There are loads of great stocks to choose from, and I've got my wallet out. So here's the question I'm asking right now. Should I buy Marks & Spencer (LSE: MKS)?

Far from saintly Michael

Personally, I've never really bought into Marks & Spencer clothing. When I was young, I considered its clothes drab and uncool. Now I'm in my mid-forties, I still feel the same way, and I find its stores drab and uncool as well. I don't even buy cheap socks there any more. M&S food halls are a different matter. I must have eaten thousands of M&S sandwiches in my time, and there's room for more. But should I tuck into its shares?

Don't bank on this

Marks & Spencer is a little like that other long-standing UK institution, the BBC. They're both a bit auntie-ish, and although we wouldn't want to lose them, we like grumbling about them. Marks & Spencer has drawn flak for its recent "real women" advertising campaign, which was supposed to show normal women sporting its underwear, but in time-honoured fashion industry style, accidentally substituted them with skinny supermodels. I'm equally unconvinced by its new Premium Current Account, which carries a hefty fee of £20 a month. M&S claims benefits such as worldwide travel insurance, M&S shopping vouchers, loyalty points and a 6% savings account are worth more than £500 a year, but that's only if you use them all. Packaged bank accounts are all news anyway. Like other recent entrants, such as Metro and Virgin, I don't see M&S breaking the banking mould, especially when you discover that M&S Bank is a wholly owned subsidiary of HSBC (LSE: HSBA).

Mark my words

Food aside, my worry about Marks & Spencer is this: what's the point of it? If you want cheap, cool fashion, Primark does it better. Even people in their 30s and 40s dress like teens these days, which again, rules out M&S. That leaves a relatively older demographic, who tend not to spend as much. And why would they, in such a dreary environment? Last time I blundered into M&S clothing, I had to check it wasn't a charity shop. Recent bleak sales updates suggest I'm not the only one who feels this way.

A sandwich short of a buy

Marks & Spencer has spent years trying to pull off one of the hardest tricks of all -- buffing up its image to attract new customers, while clinging onto the old ones. It has subjected itself to fashion makeover after makeover, but still hasn't succeeded. At £3.94, its share price remains 50% lower than before the financial crisis, although it did rebound in recent months, on talk of a private equity-backed takeover. I've absolutely no idea whether there will be a bid, but I would ask this question: if you had £6 billion, would you spend it in Marks? Trading on a 4.3% yield, covered 2.1 times, the stock may still tempt income seekers. You can buy it on a modest forecast price-to-earnings ratio of 10.9 times earnings, but personally, I won't. I'll stick to the sandwiches.

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> Harvey owns shares in Royal Dutch Shell. He doesn't own any other shares mentioned in this article.

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Comments

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liesarenocomfort 30 Oct 2012 , 1:43pm

I still feel the same way, and I find its stores drab and uncool as well

Yes, but Harvey, now you're in your mid-forties you don't care about being cool any more.

Do you?

Let it go -leave that to the young-uns!





ANuvver 30 Oct 2012 , 6:38pm

M&S is certainly not all about "dad clothes". I can understand that you consider brand image from an investing perspective, but am surprised you can't seem to look through it as a consumer. M&S's online shopping experience is very good too.

If you ever should find yourself in need of a suit, I find M&S an excellent quality/value balance. By contrast, I find Primark stuff often starts falling to pieces on contact with a dry cleaner.

If you want excellent quality shirts at very cheap prices, a lot of previously high-end tailoring marques (eg Tyrwhitt) are discounting like mad.

(I'm the same age as you, and I don't own MKS.)

Mike10613 30 Oct 2012 , 6:46pm

I'm not buying Mark and Sparks either. That's three of us. Anyone else want to join in this not buying spree? Don't all rush at once, you could send the price down that low that I could be tempted! ;)

vinchainsaw 31 Oct 2012 , 8:59am

Harvey,

Do you know how the bottom line is split between clothing and food?

Jonesey12 31 Oct 2012 , 9:06am

liesarenocomfort - you're right, I'm waaaaayyyy too old to be cool, but old prejudices die hard, and are shared by many people (investors included).

Would you buy MKS?

ScottishPound 31 Oct 2012 , 7:03pm

I'm a happy customer, buying most of my clothes at M&S, and a happy investor buying MKS shares @ 321p in January this year, up 22.5% and collecting a good dividend.

But would I buy now? I'm happy to hold, but like SBRY they look a bit pricey unless there is growth to provide more upside.

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