Outlook: Marks & Spencer

THERE IS an old stock market saying that a struggling company's shares should be bought on the third profits warning. This is a variation of the "bad news comes in threes" adage. The corporate version has it that after three warnings the company's management finally realises that, yes, there really is a problem. With the true awfulness of the picture reflected in the price another old cliche should begin to come into play; if they don't do something about it, someone else will come along who will.

On this basis, we are due one more Exocet from Marks & Spencer before it is really time to buy. There have been two of the blighters in a year now, a 12-month period which has seen a quite breathtaking fall from grace for this former housewives' favourite. Already down from 664p to 315.5p in 18 months, WestLB Panmure yesterday put a new 280p price target on the stock. Don't expect it to get there in a hurry, though, because such is the scale and fanaticism of the M&S investment fan club that private investors and fund managers alike cannot resist piling in on every wobble, not withstanding the wait for the third profits warning rule.

Could there really be more bad news to come? If the City began to feel the dividend was under threat, then things might seriously slip. The dividend is barely covered by earnings as it is, and if trading does not improve soon, the doubts will grow. Such would be the outcry from M&S army of shareholders that we must assume this is still unthinkable in the M&S boardroom. As it is, the shares now yield almost 5 per cent and M&S has suffered the indignity of becoming a yield stock.

Big names can reinvent themselves. Just look at Dixons as evidence of that, and even fuddy-duddy old WH Smith is now regarded as a quasi-Internet stock. M&S has genuine recovery potential but more fresh blood needs to be brought in to make it happen. Analysts complain that M&S is a case of the same old people making the same old mistakes. Worse still, some of the best people are leaving, as always occurs when a ship begins to sink.

The board is trying desperately hard, and at least there is now a marketing director. But many recent "initiatives" look too little, too late. The decision finally to mirror changes in retail spending habits and go into mobile phones is an example. On this evidence, what odds on an M&S move into free Internet access provision? Stmichael.com anyone? Next year, maybe.