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Marks amp Spencer s chasing growth away from home

Article By: ,  Financial Analyst
April 2, 2014 6:19 PM

Shares of retailer M&S are up around 2% (at time of writing) on the back of international expansion plans, which the company unveiled yesterday (1st April).

This comes ahead of its fourth quarter trading update next Thursday, which is widely believed to be relatively disappointing.

So, perhaps to focus investors’ minds away from the short term, M&S announced its intention to boost international revenue and profits by 25% and 40% respectively, over the next three years.

For context, the UK-based company’s international sales for 2013 accounted for around 10% of total sales, with operating profit representing 15%.

Here’s how M&S plans to boost its presence away from home

M&S will open 250 new stores, grow its food business and increase its franchise operations; with an eye on India, China, Russia, the Middle East and Western Europe.

Part of that includes opening around 20 new food stores in Paris over the next three years, which will make the region the company’s largest food market outside of the UK.

All of this seems in line with the turnaround plans announced back in 2010 by CEO, Marc Bolland, when he took the helm – which included a refocus on international expansion in a bid to boost growth.

But bumps remain in the road near-term

That includes reports, citing research firm Kantar Worldpanel, which suggest that the company’s share of the UK fashion market is on the decline.

Meanwhile such expansion ambitions cost and, as at September last year, M&S had a net debt of around £2.3bn.

That works out to around 1.9x net debt to trailing EBITDA, which is high by historical standards and also compared to some peers: Next, for instance, is at 0.6x net debt to EBITDA.

Expanding internationally is of merit for the long term but success will by no means come easily

Indeed, we’ve seen some others try and fail before – M&S itself has tried previously, albeit under a different helm.

Still, the company’s latest update is seemingly sitting well with investors – but if next week’s update expectations are anything to go by, the sentiment could soon change.

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