ii view: M&S - a transformation and further growth

First-half results to 28 September

• Revenue up 5.8% to £6.52 billion
• Adjusted pre-tax profit up 17.2% to £407.8 million
• Interim dividend unchanged at 1p per share
• Net debt down 16% to £2.16 billion

Chief executive Stuart Machin said:

“The easy thing to do today would simply be to say that these are good results, but that wouldn't be the right thing to do. In the spirit of being positively dissatisfied, we have so much to do over this year and beyond. Despite our strong trading momentum, there is much more opportunity for future growth and that energises us.

“The recent Budget's long-term impact on M&S, our suppliers, and our customers is for now uncertain. Meanwhile, we are confident and we remain on track and focused on what is in our control. We have the best Christmas food range I've seen in my time at M&S and the most stylish seasonal clothing offer yet, and we know customers are looking forward to celebrating Christmas with M&S.”

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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. 

UK and Ireland clothing and homeware contributed the biggest chunk of adjusted operating profit during this six-month period at £242 million, followed by UK and Ireland food at £213 million. International profits came in at £15 million, with the Ocado JV losing £16 million.

For a round-up of these latest results announced on 6 November, please click here. 

ii view:

Began in 1884, M&S today operates more than 200 full-range UK stores which it is modernising and reducing to a portfolio of 180 outlets by the fiscal year 2028. A total of over 350 food only and in store food halls are being expanded to around 420 outlets come 2028. The international business has more than 430 stores in over 70 markets, working alongside 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, rising cost inflation persists. Sales for the international business fell 10% year over year, with adjusted operating profit halving to £15 million. Profit margin for online sales fell 2.2 percentage points to 7% as the cost of ongoing investment weighed. A forecast price/earnings (PE) ratio above the three-year average may suggest the shares are not obviously cheap, while a prospective dividend yield of around 1.4% compares to yields of over 3.5% at fellow retailers Tesco and Sainsbury's.   

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More favourably, a reset for the international business includes a new leadership team. Active online customers increased to 7 million from 6.6 million in late September 2023. Group initiatives including store revamps and the selling of third-party brands, targeted cost savings of £500 million by the fiscal year 2028 remain on track, while capital expenditure is expected to be about £500 million this financial year. 

For now, and while risks such as unseasonal summer weather cannot be forgotten, the retailer’s ongoing transformation and a consensus analyst fair value estimate above 425p per share offer grounds for continued long-term optimism. 

Positives: 

• Product and geographical diversity
• Targeting cost savings

Negatives:

• Competition not standing still
• Uncertain economic outlook

The average rating of stock market analysts:

Buy