How long do you give a new team before buying into their turnround story? A month? A year? Two years? Marks and Spencer shook up its clothing team in mid-2012 and investors have enthusiastically given their backing. M&S shares are up a third in the year to date. They now trade on 15 times forecast earnings against 11 at the start of January and a 10-year average of 12.
Consumers, on the other hand, have been far more cautious. Results on Tuesday showed that UK like-for-like general merchandise (largely clothing) revenues declined again in the second quarter, the ninth consecutive quarterly decline. The new team really has a job on its hands. They only got going at the start of this year so the autumn/winter range is their first proper stab at turning things round.
The company is pulling out all the stops to make sure the clothing revamp, and other initiatives, work. Operating costs are higher as the company moves to new online and distribution systems. Capital spending is expected to be ￡775m this year before falling to ￡550m in 2014/15. Yet M&S also maintained its dividend. The result of this attempt to keep everyone happy is gently rising net debt, although at 2 times forecast earnings before interest, tax, depreciation and amortisation it should not cause sleepless nights yet.