- Impressive sales and earnings growth

- Still work for new management team to do

- Cautious guidance not a big surprise

After the poor performance of many UK and US retailers this earnings season there was a lot of apprehension ahead of today’s full year results announcement from Marks & Spencer (MKS).

In the event, the market seemed pleased enough with the firm’s performance and fairly sanguine about the outlook as the shares traded slightly higher at lunchtime.


Chief executive Steve Rowe, who hands over the reins this year to a new management team, described trading for the 12 months to the start of April as a ‘strong performance delivered by a more resilient M&S’, and judging by today’s reaction it appears the market concurs.

Group sales were up an impressive 18.7% to £10.88 billion, which was nearly 7% better than the year to April 2020, while operating profits trebled to £709 million, also marking a healthy increase on pre-pandemic levels.

That meant at the pre-tax level the firm swung to a profit of £392 million from a loss of £209 million last year and earnings per share were 15.7p against a loss of 10.1p previously.

‘For me, what is important about these results is not just the restoration of profit and strong cash flow; it is that they demonstrate that M&S has fundamentally changed’, said Rowe.

He added, ‘While there is much more to do, the business has moved beyond proving its relevance and has the opportunity for substantial future growth.’


The food business, which has carried M&S for years, delivered a 10.1% increase in revenues and has been transformed into a high-performing business with market-leading like-for-like sales growth on a 12-month basis, according to Rowe.

Clothing and home, long the weakest division, actually delivered a 3.8% increase in revenues driven by a more than 50% increase in online sales.

The number of lines has been dramatically reduced and discounting has halved, improving the brand perception and putting the business ‘on track for a more profitable model capable of growth’

Naturally, more can be done to improve both parts of business and to better incorporate the customer data from the Sparks loyalty card which now has 15 million members and four million app users.

However, the overall impression is of a business which has indeed been transformed both operationally and financially and one which, despite the current cost of living crisis, will continue to be around for many years to come.


Trading in the first six weeks of the new financial year has been ahead of last year, which is encouraging, with a ‘particularly strong’ showing in clothing and home.

However, management is realistic enough to accept that with input prices rising, pressure on consumers, no business relief on its UK operations or any income from Russia, profits aren’t going to grow this year, especially if it wants to keep investing.

Also, while its half-share in the Ocado Retail joint venture made a small contribution to earnings last year, the business has lowered its sales and profit forecasts for this year on the back of the weak consumer environment which is hardly a great surprise.

Nevertheless, says Rowe, ‘with improved profitability and cash conversion, and financial net debt under a third of 2019/20 levels, the business is resilient to the macroeconomic headwinds while having flexibility to invest in our transformation priorities’.


Clive Black, head of research at house broker Shore Capital, called the results ‘very pleasing’ considering the level of volatility surrounding the sector over the past year.

Looking ahead, ‘Whilst there are clear UK economic headwinds and particular concerns about the fourth quarter of this year, the new leadership team faces the future alive to the necessary work to deliver sustainable growth from a superior operating base’ says Black.

Having adjusted his forecasts to account for a lower contribution from Ocado Retail, Black believes the shares are undervalued on just 8.5 times this year’s earnings.

‘M&S' equity has, to us, been pricing a major profit warning, we see a real value play equity with considerable upside’ he concludes.


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Issue Date: 25 May 2022