ii view: M&S recovery has momentum

Full-year results to 30 March

• Sales up 9.4% to £13.1 billion
• Adjusted pre-tax profit up 58% to £716.4 million
• Final dividend of 2p per share – no payment a year ago
• Total full year dividend payment of 3p per share – no payment last year
• Net cash, excluding leases, of £45 million, improved from net debt of £356 million 
• Net debt including leases down 18% to £2.17 billion 

Chief executive Stuart Machin said:

“We have made progress on 'hardwiring' sustainable change - how and when we execute our strategic priorities - with progress in store rotation and supply chain. However, we need to move faster and be ruthlessly challenging on the areas where progress has been slower, building a more effective digital and technology infrastructure, accelerating the move to a truly personalised customer experience, and resetting priorities in International.”

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ii round-up:

Marks & Spencer Group (LSE:MKS) is a retailer of Clothing and Homewares, and Food, both in store and online in the UK and overseas. 

Its UK food business now includes a 50% joint venture with delivery company Ocado Group (LSE:OCDO). 

UK food accounted for 62% of sales during this latest year, followed by UK clothing and home at 30%, and international sales the balance of 8%. 

For a round-up of these latest results announced on 22 May, please click here. 

ii view:

Started in 1884, M&S today operates around 247 full-range UK stores which it is modernising and reducing to a portfolio of 180 outlets. Along with 40 food halls across the full-range outlets, another 316 food-only stores operate with plans to expand this to about 420 outlets. Its international business has more than 430 stores in over 70 markets, working in tandem with 39 websites. Group competitors include, Next (LSE:NXT), Zara owner Inditex, online clothing seller ASOS (LSE:ASC) and supermarkets Tesco (LSE:TSCO) and Sainsbury (J) (LSE:SBRY).  

For investors, the tough economic backdrop including high borrowing costs continues to affect many customers. Profit at the online business continues to underperform given the size of revenues generated, sales and profit for the international business both fell year-over-year, while a forecast dividend yield of around 1.9% compares to yields of 4% and above at fellow retailers Dunelm Group (LSE:DNLM) and Sainsbury's.  

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On the upside, overall sales and profit improved, while M&S is in a net cash position compared to net debt a year ago. Online sales increased 7.8% year-over-year, a five-year cost savings target has risen to £500 million from £400 million, management initiatives including store revamps and the selling of third-party brands are ongoing, while the company has resumed dividend payments.

On balance, and despite ongoing risks such as unseasonal summer weather, investors are likely to stay loyal given ongoing management initiatives and a consensus analyst fair value estimate above 325p per share.

Positives: 

• Product and geographical diversity
• Targeting cost savings

Negatives:

• Competition not standing still
• Uncertain economic outlook

The average rating of stock market analysts:

Buy