These two household name retailers have struggled for more than a decade and last week piled on yet more pain. Will they ever get it right?
Off your Marks
Last week was another bad one for high street retailer and British institution Mark & Spencer Group(LSE: MKS), which announced that it was shutting 30 UK stores and converting 45 more into food-only shops as part of a major business overhaul. This confirms 2016 as an annus horribilis for M&S, whose share price is down almost 40% over the last 12 months, including a drop of 7% in the last week alone.
I reckon that chief executive Steve Rowe is right to devote more space to the company's successful food business, with plans to open 200 new Simply Food outlets. The company's repeated failure to square the circle in its clothing business - attracting younger fashion-conscious customers without alienating Mrs M&S (to use Rowe's slightly patronising phrase) - suggests it simply isn't possible. It has been squeezed between cut-price retailers like Primark and Zara, and higher end fashion offerings. The result, five consecutive years of falling sales.
Food, glorious food
Nor can you argue against Rowe's plans to close 53 lossmaking overseas stores in 10 countries, even if the entire overhaul could cost as much as £550m (so farewell special dividends). The question is, will this turn things round? My worry is that food is a tough sector, where only Aldi and Lidl at one end and Waitrose at the other thrive. M&S has also shone at the top end, the question is whether it can sustain its success across another 200 stores. M&S is tempting at today's low valuation of 9.05 times earnings and yielding 5.72%, but be warned: its share price is still trading at May 1992 levels.
Trouble in store
The last week has been even worse for grocery chain J Sainsbury(LSE: SBRY), whose share price has fallen 9% in that time. Half-year trading figures showed underlying retail operating profit down 7.2% to £308m, like-for-like sales off 1% and underlying earnings per share sliding 6.7%. On the plus side, online and convenience store sales did increase. The group is on track to deliver £500m of cost savings by 2017/18, with another £500m savings target to follow. It also cut net debt by £485m to £1.3bn, giving it one of the strongest supermarket balance sheets.
The Sainsbury's share price is down 40% over the past three years and remains far lower than it was a decade ago. Another worry is the post-tax pension deficit, which is now a hefty £1.31bn, forcing it to increase its contributions by £6m per year to £84m until 2021.
10 years of trouble
Argos is now the big hope, following this year's £1.4bn acquisition. Chief executive Mike Coupe aims to have 30 Argos digital stores and 200 digital collection points in supermarkets by Christmas, and 250 Argos digital stores in supermarkets over the next three years. It adds £4.1bn of total sales to the company's existing £2.5bn of clothing and home sales, and offers diversity from the ailing grocery sector. Today's investors are taking a punt on whether it will succeed. Right now, we simply don't know.
Trading at 9.52 times earnings and yielding 5.14% Sainsbury's may look like a bargain, but a lot of investors have thought that over the last 10 years, and regretted it.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.