Financial Market Research and Analysis

Our analysts have their fingers on the pulse of the world's financial market news.

CFD trading is high risk and may not be suitable for everyone.
M&S facing the deflation challenge
Marks & Spencer will announce the 1H earnings tomorrow; analyst expects a significant drop in the EPS from £0.1942 in H2, 2015 to £0.1336, mostly due to a slump in the general merchandise sales – mainly clothing. Food should temper the fall in sales expected to have declined to £4.957bn in H1,2015 from £5.429bn in the second half of last year. The first half of the year has been difficult for retailers, the deflationary environment is a sizeable challenge.

The improvement in wages is encouraging for the future, whereas the back-to-school sales have barely compensated for a £27mn decline in sales during the month of August. Investors need some more patience as the economic recovery is happening in a quite slow fashion.

While the online operations carry hope, problems experienced by the distribution centre in Castle Donington and Leicestershire at the beginning of the year are a bit worrying.

M&S share price slid by 20% from May to September, the recovery is underway however the share price is still below the major 38.2% retracement level (£522.90p) needed to be cleared for a technical bullish reversal signal. Above this level, an extension to £537.60p is considered, while a failure to surpass £522.90p could signal a consolidation between £500-525 as investors could remain on hold due to slow economic recovery and strengthening pound.

Analysts remain optimistic however with buy/hold/sell recommendation as follows: 15/9/5. Slightly more than half is still willing to buy for a 12-month target price of £567.74p

CFD trading is high risk and may not be suitable for everyone.