Long or short Marks amp Spencer

Go long Marks & Spencer

Q4 sales will probably show continued sector-beating strength in food and there may be scope for surprises in the troubled General Merchandise (GM) division, comprising clothing, footwear and homeware. Marks & Spencer’s new chief, Steve Rowe, said this week he would continue to lead GM, making its turnaround his top priority. As an M&S veteran of 26 years, Rowe officially succeeded Marc Bolland just last Saturday, stepping-up after leading general merchandise for only 8 months. Although it contributes about 60% of M&S’s profit, the division has enjoyed just one quarter of like-for-like sales growth in 20. Another fall is expected when the group reports on Thursday. However, with mixed-to-good clothing sales growth by rivals like Next, Debenhams and Moss Bros so far this year, forecasts of a 3.4% fall in GM sales might be too pessimistic. That means M&S shares could rally if GM sales are better than expected, especially after the stock slumped to an 18-month low last week. Any plans to ‘invest in margin’ could help, and if Rowe bites the bullet and announces a sale of Marks’ huge property estate, as the City suspects he might, the rally could be exponential.

Go short Marks & Spencer

It’s only April, and M&S has already lost one CEO and its shares have hit their lowest in 18 months. What more could wrong? Plenty. With the UK’s biggest clothing retailer, Next, warning that 2016 will be its toughest year since 2008, M&S’s clothing business could get ripped even further. On top of that, Marks & Spencer doesn’t look like it will be able to avoid a downgrade of 2016-18 profit expectations—AKA a profit warning—on Thursday. Whilst Marks’ food business in all probability kept ticking along in Q4, with the same single-digit-percentage-point-or-less like-for-like growth it’s posted for years, General Merchandise sales are forecast to fall at least 3.4%. After M&S spent billions on the division and revamped it from top to bottom, the fact that it’s still not profitable may be a message for new CEO Rowe, who has said he will remain in charge of GM. His first tough job in the hot seat will be to convince investors on Thursday that was the right decision.