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M&S management and strategy slammed by broker

Marks & Spencer’s discounting and cost cutting is threatening the long term health of the business, according to analysts at broker Investec.

Broker Investec blasted M&S in a report today and issued a five point “manifesto” calling for changes to management, trading strategy and stores, which it said would give it a more positive stance on M&S shares.

Analysts Katharine Wynne and David Jeary at Investec said: “More of the same from M&S management is not an option for the company in our view: we believe that continuing on the path of discounting to compete with value retailers, de-specifying product to protect margin, deferring long overdue investment in infrastructure and sleight of hand on the balance sheet, will ultimately translate into a de-rating.”

The Investec “manifesto” calls for a dividend cut, no further cuts in capex, a focus on M&S’ main store format and more out of town stores, changes to its promotional stance, addressing the issue of who will be the next chief executive and the “unbalanced” board structure. It also added that overseas expansion should be put on the back burner.

Investec said: “The operational management team has not delivered an impressive performance over the last 18 months, and whilst changes have been made within the food division, we do not see the chief executive as within the ranks, and indeed question whether the operational team needs to be strengthened in general merchandise. The structure of the board, including the lack of an independent chairman, also looks unbalanced.”

On M&S price promotions, the report said that discounting was “teaching customers to shop on promotion”. It added: “It may well be driving store traffic, attracting a less loyal customer, but risks alienating the traditional customer and reducing the frequency of visit, history a big string for the company. Price integrity has been undermined and price architecture is still encouraging trading down.”

Ahead of M&S’ preliminary accounts to be announced on Tuesday, Investec forecasts profit before tax for the full year to £620 million.

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