Cutting back capital expenditure in a retail downturn

Today’s announcement of results from Marks and Spencer is notable for two key cash flow-related decisions rather than the underlying trading performance…

M&S sales are down, but the results are broadly in line with investor expectations. We know that the main food and clothing retailers are suffering; it is mainly a question of who is suffering most (or least!).

Two key decision by the M&S Board caught my eye.

The first - deciding to keep the dividend payment. This will be kept at 22.5p per share - a better relative return for M&S shareholders who have bought at the lower share price (currently around £2.25)

The second - a plan to substantially cut the amount spent on capital expenditure. M&S were previously planning to spend around £900m next year on capital projects such as store refurbishments, new stores, IT systems and so on. To conserve cash (and reduce the depreciation charge), they are cutting that back by around £150m. A year later, they will cut capital spending back even further, planning to invest around £400m (mainly on IT systems). So don’t expect to see many freshly-decorated M&S stores in the next year or two. It is a question of making-do with the existing retail infrastructure and riding out the storm…