Marks & Spencer to “hibernate” Spring stock as it prepares to update the market

M&S Marks & Spencer
M&S CEO Steve Rowe

Marks & Spencer is to “hibernate” some SS20 stock to bring out next year, it has been revealed ahead of the retailer’s annual results to be published on Wednesday.

The high street giant is among a number of businesses, including Next, Primark and Debenhams, to be seeking out extra warehousing space to hold carry-over stock.

According to the This is Money website, basics such as summer t-shirts and jeans, as well as neutral lines such as office and formal wear, will be held until next Spring. The exact amount of stock to be held will depend on trading levels in the next few weeks.

Next has already revealed that it will be holding over around 15%, or £330m worth of its Spring stock, until next year.

Marks & Spencer has continued to trade online during the COVID-19 pandemic while its clothing stores have been closed, though some essential clothing items have been available to buy from clothing stores attached to food halls, which have been permitted to be open.

Last week it launched a “Rainbow Sale” offering up to 50% of selected items in a bid to stimulate demand as the lockdown begins to be be relaxed. Depending on the spread of the virus, non-essential UK retailers should be able to begin re-opening in phases from 1 June.

Industry watchers are braced for an unprecedented level of discounting as stores begin to open their doors as demand is expected to remain suppressed for some time, with no tourists in key areas and office workers continuing to work from home.

However, depending on their cash levels, some retailers will opt to hold over stock where they can and decrease SS21 orders. Many have already pulled back or cancelled orders for AW20.

M&S has shored up its finances to help it ride out the crisis in a move that has been welcomed by analysts who are waiting for it to reveal its year-end results on Wednesday.

The company has undertaken a number of cost-cutting measures including cutting forward orders, pay freezes and pay cuts for senior management and pulling back on marketing spend.

It has already announced that its £130m dividend will be scrapped while the Government’s business rates holiday has also saved the retailer £180 million.

It has also announced it would be eligible for a Government loan, via the Bank of England, and may use it if required.

Analysts will now want details on what base scenario M&S is operating from and how CEO Steve Rowe and his team can emerge from the COVID-19 crisis.

Retail analyst Clive Black, at Shore Cap, said: “No doubt the group will seek to outline to the best of its capability, expectations in what remain very volatile, uncertain and potentially straitened times.”

Geoff Lowery, retail analyst at Redburn, added: “The group’s liquidity position puts it in the survivor bucket. Yet, the trajectory of earnings, even beyond immediate virus impacts, is opaque.

“The energy and drive of the management team is welcome and important but is there an answer?”

Rowe will also be expected to update on plans for launching an online food offering, following its link-up with Ocado.

The launch date is in September and M&S will be keen to cash in on the rise of home delivery from lockdown, determined to open on time.

Either way, the share price started the year at 215.9p and closed the week out at just 84.05p and if there is any chance of its recovery, analysts will want the details of how customers will splash the cash before recommending investors start doing the same.