June 29 (Bloomberg) -- Marks & Spencer Group Plc’s reign as the U.K.’s largest clothing retailer by market value is over after it was overtaken this week by competitor Next Plc.
Next, which gets about a third of sales from its online Directory unit, rose 1.2 percent to 3,199 pence today, giving it a market capitalization of 5.28 billion pounds ($8.3 billion). That’s 62 million pounds more than the 5.22 billion-pound valuation of London-based Marks & Spencer.
Marks & Spencer’s eclipse by Next adds to the pressure on Chief Executive Officer Marc Bolland, who has struggled to revive sales since he took the helm more than two years ago. At Next, with sales almost three times smaller than M&S, a superior earnings record and a larger online business have helped propel the Leicester, England-based retailer past its competitor.
“Next has grown profitably, it’s a very well-run business, it’s a very good brand,” said Andrew Wade, an analyst at Numis Securities in London, who has a hold recommendation on Marks & Spencer and an add rating on Next.
Marks & Spencer was 1.35 billion pounds ahead of Next in capitalization on March 21, data compiled by Bloomberg show. Since then, M&S has dropped 15 percent while Next gained almost 10 percent. Next, which surpassed M&S on June 25 for the first time, trades at 12 times estimated earnings, compared to 9.4 for Marks & Spencer.
Next Directory home-shopping revenue increased 16 percent to 1.09 billion pounds in the year through January. The unit’s sales have risen more than 10 percent every quarter since 2010.
Marks & Spencer online sales delivered to homes or to be picked up at stores were 559 million pounds, accounting for just 5.6 percent of the retailer’s 9.9 billion-pound revenue last year. In the U.K., M&S clothing sales rose 0.2 percent compared with a 3.9 percent increase in food.
The transition from a store-based retailer into an online one has helped Next overtake M&S, Wade said.
“Next was positioned well with the catalog business and having made the transition into multichannel earlier, they have taken advantage of that channel shift more than M&S,” he said.
Next is buying back another 200 million pounds of shares this year, helping to increase market value after a 290 million-pound buyback program last year.
Marks & Spencer, which hasn’t bought back shares since 2008, reduced its sales forecast in May as a slump in consumer spending hurt sales. It’s spending 450 million pounds to improve stores, with new layouts and marketing campaigns to differentiate its clothing brands and by adding deli counters and bakeries.
Kate Bostock, who heads Marks & Spencer’s non-food business, is set to leave the retailer after eight years, the Financial Times reported yesterday. The departure may be announced at the company’s annual general meeting on July 10 or sooner, according to the newspaper.
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