ii view: M&S sparks investor optimism but is it justified?

Shares in this iconic British retailer have rallied hard during 2023. We assess prospects. 

Full-year results to 1 April

• Revenues up 9.6% to £11.9 billion
• Pre-tax profit up 21% to £475.7 million
• Adjusted profit down 8% to £482 million
• No final dividend payment
• Net debt down 2% to £2.64 billion

Guidance:

• Expects to declare a modest interim dividend later this year

Chief executive Stuart Machin said:

“M&S is such a special business with so much potential. Despite facing significant headwinds, I am encouraged by the strong foundations established last year and excited about what we can achieve in the year ahead."

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ii round-up:

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

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

It also operates both M&S Bank and M&S Energy.

For a round-up of these latest results announced on the 24 May, please click here.

ii view:

Started in 1884, M&S today operates several hundred UK general and food related outlets. It also has stores and website operations spread across 100 overseas markets. A constituent of the FTSE 250 index, rivals include Next (LSE:NXT), owner of Zara, Inditex Industria De Diseno Textil SA Share From Split (XMAD:ITX), online retailers such as ASOS (LSE:ASC) and rival food retailers such as Tesco (LSE:TSCO) and Sainsbury (J) (LSE:SBRY). 

Its latest transformation programme under the relatively new CEO Stuart Machin includes a continued store renewal programme, expanding online sales, modernising its supply chain to improve availability, and focusing down on costs.

For investors, initiatives to attract younger buyers to its clothing ranges and enhance the customer perception of value across its food lines remains a work in progress. The tough consumer backdrop including rising mortgage rates cannot be ignored, costs generally for businesses are elevated, while group cash is still being directed to both ongoing required investments and reducing debt.   

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On the upside, sales across clothing, food excluding Ocado, and overseas all grew over this latest year. Structural cost savings of £400 million over five years are being targeted, management initiatives including its store revamp and the selling of third-party brands are ongoing, while a sufficient reduction in debt has been made for management to now be planning a modest restart of the dividend payment later this year.   

In all, Marks & Spencer’s years of transformation and reshaping do broadly appear to be showing progress. A turnaround at its clothing and home business continues, while its overall online proposition has significantly improved. That said, while the business is now moving in the right direction consistent growth has not yet been achieved, with a more than 50% gain in the share price year-to-date likely to leave more cautious investors side-lined for now. 

Positives: 

• Product and geographical diversity
• Ocado Joint Venture gives it a scalable presence in online grocery

Negatives:

• Competition not standing still
• Uncertain economic outlook

The average rating of stock market analysts:

Hold