Media vs Media: M&S: Big Brands or Big Numbers

Marks & Spencer (M&S) this week made two significant announcements. I believe the most important news was better-than-expected profits. The second announcement was plans to sell ‘big brands’. One set of news focuses on the past while the other ensures the future profitability of the company. Which is more important? Or was this a good publicity ploy by M&S?

Based on the M&S website two press releases were released. First, was the press release to ‘Sell Branded Grocery and Household Products’. Secondly, the press release for financial results.

But not unsurprising ‘Big Brands’ was the leading story in most press headlines and journalists pounced on the story. The financial data was a worked-into the story or later updated, and I believe saturated the financial news. As an investor I would like to know the financial data first but as a shopper this is great news.

However, the better-than-expected profit before tax of £298m did lead to analysts raising their full-year estimates and according to the Financial Times ‘shares in M&S rose 6.5 per cent in early trading’. Analysts were predicting profits of £285m. This highlights the importance of future earnings growth for a company and the reaction from the market. Analysts were right to believe that the stock was undervalued.

But the decision to offer selected branded goods was a good way to hide the fact that M&S will be facing intense competition from Waitrose, a threat to future earnings growth.

It is a pre-emptive strategy since figures show, stated from Times Online: ‘M&S is losing market share in food, falling from 3.7 per cent to 3.5 per cent in the quarter’. Since Waitrose plans to open up to 300 smaller stores it would be necessary for M&S to keep their customers in their stores instead of wandering off to their local Tesco for other products. However, it is a strategy that may harm a 125 year old brand.

M&S selling other brands in its stores could likely devalue the brand of M&S products since it puts M&S in the league of convenience stores such as Tesco. But M&S is smart by introducing products from brands they could not replicate or compete with, such as Marmite and Kit Kat. I think falling profitability and lower market share is more likely to devalue M&S to shareholders and opinion varies greatly.

News coverage for this story this week was very diverse with some papers offering a Retail Correspondent article and a Journalist article separating the content of the announcements.

The Financial Times (FT) offered both stories. The article by O’Doherty provided an objective and financially relevant story with quotes from Sir Stuart Rose, the Chief Executive and an analyst opinion from Oriel Securities. The article summarized the financial reports and gave details on the future strategies of M&S. As an investor I would be happy to read this article to help support my justification to invest in M&S.

The other FT article was written by the Retail Correspondent. It was very brief but concise story which highlighted the need for M&S to adopt brands to its product line. Felsted made reference to Waitrose which was good for the reader to understand the potential threats to M&S.

Bloomberg was different to the FT. They combined the story of profits and branded products. The article was more optimistic with headings like ‘Good Start’ and highlighted the 21 percent growth in profit from its overseas stores. The FT was more domestic. I like to know how overseas factors affect the UK operations.

Times Online was another news service which provided two articles. The Lindsay article did not contain as much financial data as the FT or Bloomberg articles. It was made up of quotes from Sir Stuart Rose and John Dixon, Executive Director of Food and made the article seem more colloquial.

The other Times article by Lenoux was subjective as it described the impending ‘war’ with Waitrose. I liked how the journalist mentions how the M&S boss down played the threat of Waitrose last month. Seemingly contradicting that view by implementing a new business strategy.

The Mail Online was the most subjective of them all. The journalist liked the idea of M&S selling the ‘big brands’ and the table in the article shifted attention to the ‘Big names they will stock’. I think this article is a good read for the average consumer as it gives them an idea what to expect in the stores. The article mentions very little financial data. But I suppose readership of the Mail are not likely to invest in shares of M&S but instead help boost profits.

As a poor student I do not look for ‘premium’ M&S products preferring the convenience and lower price for well known branded products at Tesco or Sainsbury’s. It depends on your taste. The same applies on what types of information you seek from the media. Do you want financial data? Or do you want to know about what they are now putting the shops? I surely would not be reading the Mail for investment tips. Anyways, I do enjoy the ‘M&S 3 for £5’ dinner deals!

Sources

M&S Press releases

Branded Products
http://corporate.marksandspencer.com/page.aspx?pointerid=0a05aa5dd72143379c87f017699c0e39

Financial Results
http://corporate.marksandspencer.com/page.aspx?pointerid=c07f5ecb589140148d3bf76fbd85f0b0

Financial Times
http://www.ft.com/cms/s/0/96a146be-c8a6-11de-8f9d-00144feabdc0.html
http://www.ft.com/cms/s/0/a90f9d30-c911-11de-b551-00144feabdc0.html

Bloomberg

http://www.bloomberg.com/apps/news?pid=20601102&sid=agojR18RjINc#

Times Online

http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article6902369.ece

Reuters

http://uk.reuters.com/article/idUKTRE5A31JO20091104

Daily Mail

http://www.dailymail.co.uk/news/article-1225081/After-125-years-M-S-stores-start-selling-brands.html#

Guardian