Shares in high street institution Marks & Spencer (MKS) were among the biggest FTSE 250 risers on Wednesday, rallying 4.6% to 163.2p despite the retailer posting a massive pandemic-impacted annual loss.

A 12% drop in group sales to £8.97 billion wasn’t as bad as feared, while Marks & Spencer also reported a better than expected £278.6 million drop in net debt before lease liabilities to £1.11 billion.

Investors also welcomed the news overall trading since stores reopened on 12 April has been ‘ahead of the comparable period two years ago in 2019/20 and our central case’, with Marks & Spencer now guiding towards year-to-March 2022 pre-tax profit of £300 million-to-£350 million.

CLOBBERED BY COVID

In what chairman Archie Norman previously dubbed a ‘wipe-out’ year to March 2021, Marks & Spencer lurched to a substantial statutory pre-tax loss of £201.2 million, struck after £243 million of exceptional items and the Covid lockdowns that hammered footfall.

The good news was adjusted pre-tax profit of £41.6 million beat Shore Capital’s £25 million estimate and Marks & Spencer’s reliable food business served up strong underlying like-for-like growth of 6.9%.

Store lockdowns meant Clothing & Home sales slumped by 31.5% last year, albeit performance picked up in the second half ‘as online growth made greater inroads into the store sales decline’.

Ocado Retail, the group’s online grocery joint venture with Ocado (OCDO), traded strongly, with sales up by almost 44% over the year to February 2021.

A RESHAPED M&S

Marks & Spencer CEO Steve Rowe insisted this was a ‘resilient trading performance’ from his charge in a year like no other.

‘In addition, by going further and faster in our transformation through the Never the Same Again programme, we moved beyond fixing the basics to forge a reshaped M&S,’ said Rowe.

‘With the right team in place to accelerate change in the trading businesses and build a trajectory for future growth, we now have a clear line of sight on the path to make M&S special again. The transformation has moved to the next phase.’

THE EXPERTS’ VIEW

Commenting on the figures, broker Shore Capital said it has ‘rarely felt so warm to the M&S investment thesis albeit the consumer economies in all its markets remain fragile.

‘With a stronger balance sheet, encouraging current trade and building cash flows, which could mean dividends in the foreseeable future (we assume FY2023), M&S’ shares could be primed for a strong upward run.’

Russ Mould, investment director at AJ Bell, said Marks & Spencer ‘seems to be hoping that 2021 will be a turning point (just like each of the previous years and their turning points, given its eternal turnaround programme).

‘The retailer is betting its fortunes on a permanent shift in the type of clothes people want. So smart suits and tailoring services are going to be downsized in favour of giving more floor space to athleisure items, children’s clothes and more smart casual items for those who do return to the office.

‘If this new push with clothes is unsuccessful, it will no doubt raise the question once again as to whether Marks & Spencer would be better off focusing purely on food. It wouldn’t be easy to sell the clothing and homewares arm because of the shared floor space with food in so many stores, plus there can’t be many businesses who would want to take on additional property. Therefore, it has to make the new clothing strategy work.’

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Issue Date: 26 May 2021