3 Things to Loathe About Marks & Spencer

LONDON -- There are things to love and loathe about most companies. Today, I'm going to tell you about three things to loathe about Marks & Spencer Group (LSE: MKS  ) .

I'll also be asking whether these negative factors make this FTSE 100 high-street icon a poor investment today.

Dividend double dip
M&S has been obliged to slash its dividend twice since the turn of the millennium -- by 37.5% on the first occasion and by 33% on the second. The company has also failed to increase its dividend for the last three years.

Much of a shareholder's return comes from the compounding effect of reinvesting dividends. M&S' shareholders could have seen a much superior return from dozens of other top British companies.

Clothing and homeware
M&S' revenue is split broadly 50-50 between food and clothing/homeware. As the table below shows, declining sales in U.K. clothing and homeware have been a thorn in the company's side for a considerable time.

 

Q1 2012

Q2 2012

Q3 2012

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Change in U.K. clothes sales

0.9%

(1.1%)

1.1%

(0.3%)

(5%)

0.2%

(2.1%)

(2.6%)

Change in U.K. home sales

(5.4%)

(9.2%)

(13.3%)

(7.5%)

(6.1%)

(1.4%)

(2.5%)

1.4%

The 2013 numbers are poor -- but they look even poorer against the weak comparatives of 2012. M&S has its work cut out to inject growth back into the clothing/homeware half of its business.

Wallets closed
There have been no major purchases of M&S shares by directors for two years. Indeed, according to the Financial Times, directors have sold an average of 7,600 shares during each of the last 36 months.

If the directors are unwilling to buy shares in their own company, how much faith can investors have that M&S will deliver compelling shareholder value?

A poor investment?
Despite the negatives, the market has begun to warm to M&S. The shares have risen 28% over the past three months, including a 6% leap last week on the day the company announced its annual results. I think the market liked the outlook statement in the results, particularly the bit that went: "We expect a material improvement in free cash flow from 2014/15, and will at this point evaluate future uses of cash, with a view to delivering improved shareholder returns."

At a current share price of 470 pence, M&S is trading on about 14 times forecast earnings for the year to March 2014 and offers a possible forward dividend yield of 3.7%. Those metrics are a bit more attractive from a value perspective than the market as a whole, but I think I would like to see them a lot more attractive, given the company's checkered history of delivering shareholder value.

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