There has barely been a moment in the past 20 years when Marks & Spencer has not been in restructuring mode, so nobody can be shocked that the Covid crisis will accelerate the loss of 7,000 jobs, or 9% of the workforce. The chief executive, Steve Rowe, conceded last October that his five-year plan for the clothing side, the perennially troublesome half, was 18 months behind schedule. Something was bound to give in the current climate.
Indeed, Covid conditions have really demonstrated how slowly change has happened at M&S over the years. Rowe may be moving faster than predecessors, but the big event at the start of 2018 was the plan to close 100 to 120 small and underinvested high-street stores – the type that were being overwhelmed by the rise of online shopping. Even now, though, only half the programme has been completed.
Thus those same stores are being clobbered again as high streets become deserted and workers-from-home live without their easy-iron M&S shirts. Overall, clothing and home sales at M&S shops fell 30% in the eight weeks after full reopening. Since a few out-of-town sites are trading close to last year’s levels, some high-street outlets must be turning in shocking numbers. Faster property action would have helped.
The more optimistic view of M&S is that bright spots remain. Before Covid struck, clothing sales were growing for the first time in ages. There’s the adventure with Ocado in food to look forward to. And, while shareholders don’t have a dividend these days, the balance sheet looks solid, which buys time to adapt. Tuesday’s report actually represented better news on sales and cash than feared in last month’s update. So, yes, the idea that recovery will happen eventually at M&S is intact.
Yet you can also understand why the shares slipped another 5%. The likes of Next and Primark are already miles ahead in the efficiency stakes. Nor, in the period before a critical Christmas for the retailer sector, will either rival have to ask for 7,000 volunteers to jump into a horrible jobs market. Life is always more complicated at M&S.
Capita still on shaky ground
It was as recently as March that Jon Lewis, the chief executive of Capita, described a one-third plunge in the share price in response to the outsourcing group’s weak 2019 numbers as “a massive overreaction”. It was a silly thing to say. The fall that day was from 126p to 78p. Now Capita, after an even softer set of half-year figures on Tuesday, stands at just 29.5p, its lowest level this century.
Lewis refrained from offering more dodgy share tips and sensibly reiterated his plan for how Capita can gain control of its debt, which is the market’s top worry since a company worth just £500m is now carrying a £1bn load. In short, he plans to sell Education Software Solutions, a back-office software business for schools. If it fetches £550m, as City analysts predict, great: the balance sheet position would look far healthier.
Best to crack on with the sale process, though, because achieving a turnaround in the core businesses is now looking like a very long haul. Capita’s pre-Lewis emergency – the product of years of boardroom hubris – was meant to have passed with the £700m rights issue in 2018. Positive cash flows were due to appear this year. Now, says the company, there’ll be a delay of up to two years.
The better news for shareholders is that Capita is still winning contracts, such as an extension to collecting congestion charges in London. That’s reassuring amid the decline in revenues from more Covid-affected areas and a first-half loss of £28.5m. But the golden rule for outsourcers in the post-Carillion era is that balance sheets must be rock-solid. Capita’s isn’t, and needs to be.
Another results mess at Sports Direct
Annual results day at Sports Direct last year was a “total and utter shambles”, as one analyst put it: a tale of missed publication deadlines, a large tax demand from authorities in Belgium and a row with the company’s auditor.
This year’s event is set for this Thursday, but the fun has started early. Mike Ashley’s outfit, which now calls itself Frasers, had to confess on Tuesday that the chairman, David Daly, “accidentally” bought a few shares on Monday, a serious no-no since there’s a dealing blackout for directors before results.
The sum involved was small – just £11,000 worth of stock – and the purchase was unwound within 15 minutes. But it’s the sort of embarrassment that only seems to happen at Sports Direct. Daly, a former Nike executive, is invisible as chairman but is clearly on-message.
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