Marks & Spencer was hit with a downgrade as Deutsche Bank analysts warned the retailer would suffer from the cost of living crisis.
The investment bank lowered its rating on the stock to ‘hold’ from ‘buy’ and slashed the target price to 185p from 255p.
Analysts warned M&S would be harmed by ‘trading down’ as consumers opted for cheaper options amid a squeeze on household budgets, piling pressure on the company’s profit margins in its food business and weakening demand for clothing.
Downgrade: dayinside Deutsche Bank analysts lowered their rating on Marks & Spencer stock to ‘hold’ from ‘buy’ and slashed the target price to 185p from 255p
‘Consumer confidence is falling rapidly and real wage growth has returned to negative territory, with heightened inflation likely to drive further pressure,’ Deutsche Bank said in a note.
They also predicted the company’s profits would go ‘backwards’ in its 2023 financial year as inflation weighed on both its sales and costs.
Fuel expenses were flagged as a pain point as well as energy bills from running the company’s chilled food storage and increasing wages for its staff.
Deutsche Bank also noted that M&S has worked to lower costs in recent years and thus there was now ‘limited scope to make more aggressive cuts’.
Despite slumping earlier in the day, M&S shares recovered to close up 0.7 per cent, or 1.1p, to 153p.
Meanwhile, Deutsche predicted retailers that generated most of their sales from lower-income consumers would ‘suffer the most’ in 2022 as the cost of living crisis caused many to stop spending altogether rather than trade down to cheaper outlets.
Among these, Deutsche Bank specifically highlighted B&M (down 0.8 per cent, or 4.2p, to 512.4p) and Primark, owned by blue-chip business AB Foods (down 0.2 per cent, or 3.5p, to 1630p).
<div class="art-ins mol-factbox floatRHS money" data-version="2" id="mol-217007a0-af74-11ec-8ecb-491bd3f41f9c" website REPORT: M&S downgraded as the cost of living crisis bites