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Shouldn’t The Tide Lift All Boats?

25 May 2016 by lberuti

MKS ( Marks and Spencer Group Plc ) reported full its full year results for 2015/2016 this morning. They managed to beat expectations as EBITDA was up 3.7% to £1.36bln driven by improvements in both Clothing & Home and Food profitability. Net debt is down £85mln, which leaves leverage at 1.6x from 1.9x a year earlier. Despite these positive developments, and despite an incredibly supportive environment (even if it is the second day in a row that iTraxx Main’s risk premium tightens by more than 3bps, it does not happen that often), MKS’s 5 year CDS closed 2.5bps wider at 146.5bps. The company announced it will reduce styles to de-clutter stores and reduce its promotional stance which raised concerns over short term profits. More disappointingly, the strategy laid out by the management did not address key decisions, and the review of its international business and UK store estate will be conducted in the autumn. That said, MKS’s stock plunged 10% despite the return of a special 4.9p dividend (equivalent to £75mln), so maybe credit investors should consider themselves lucky.