Broker snap: Nomura cuts forecasts at M&S ahead of Q3 update

Nomura has lowered its forecasts for High Street retailer Marks & Spencer (M&S) ahead of the group's third-quarter trading update, but has retained its 'buy' rating and 420p target price for the stock.Based on recent Kantar market data points and comparatives, the broker expects M&S to report a UK retail like-for-like (LFL) sales decline of 1.4% in the third quarter."For general merchandise (GM) market data from Kantar Worldpanel broadly suggested a 9% decline in clothing sales in October and a flat performance in November. We expect December sales to struggle against tough prior-year promotion-driven comparatives to make positive ground, despite some reports of strong retail sales in the week before Christmas," Nomura said."Assuming they are flat in December, this suggests general merchandise 3Q sales down 2.2% (-3.5% LFL) given the strong weighting of sales towards December in the quarter."Food data has stayed relatively robust, the broker said, with Kantar posting a 1% increase in October and a 4.8% rise in November for the food and drink series. Nomura expects 3% growth in third-quarter food sales at M&S (up 0.5% LFL).However, with full-year food space growth now expected to be 2.4% (down from the 2.6% previous estimate), Nomura forecasts just a 1% increase in food LFL sales (down from 1.5% previously). GM sales are expected to fall by 2.7% for the full year (down from the -1.3% estimate previously).The full-year (ending March 2013) profit before tax forecast is reduced from £694m to £666m."In our view, M&S is changing trading stance from one driven by market share (and often promotion), to a more full-price-oriented approach. In our view, this will result in difficult quarters in top-line terms, but over time could help deliver a significant margin opportunity relative to peers."Shares were down 2.96% at 376.9p by 11:09 on Friday.BC