Entrance to M&S store in shopping mall
Marks & Spencer has continued to win market share in both food and clothing / Image source: Adobe
  • Year-to-date sales above forecasts
  • Interim profits seen ‘significantly’ better
  • Shares leap to 12-month high

Shares in Marks & Spencer (MKS) rallied 8.5% to a one-year high of 221.8p after the high street stalwart issued an unexpected update highlighting positive trading and continued market share growth in both food, and clothing and home, in the financial year-to-date.

Due to better-than-expected sales, interim results (8 November) will show a significant improvement against previous expectations and profit for the year to March 2024 is now expected to grow year-on-year, above the firm’s previous guidance.

REMARKSABLE PROGRESS

Over the 19 weeks to 12 August, the British retail bellwether has seen continued market share gains as well as ‘good progress on the programme to reshape M&S’.

Like-for-like food sales were up over 11%, helped by investment in product quality and sharper prices on over 80 ‘Remarksable Value’ lines.

In the clothing and home division, like-for-like sales rose more than 6% with strong growth in brick and mortar stores offsetting more muted online growth. Marks & Spencer highlighted strong sell-through rates and pleasing full-price sales, with a lower than planned summer sale boosting gross margins.

Hot on the heels of a surprise upgrade from rival Next (NXT), Marks & Spencer’s impromptu statement confirms the retailer has rediscovered its mojo and the UK consumer continues to spend despite downbeat economic headlines.

Guided by chief executive Stuart Machin, the company is making progress aplenty against its strategy to improve its designs, reduce discounting and improve the online offering while cutting costs.

Marks & Spencer said its group operating margin had ‘continued to be robust’, helped by better-than-expected full-price clothing sales and driven by ‘strong store performance and enhanced by our store rotation and renewal programme’.

UNCERTAINTIES AHEAD

‘There remain considerable uncertainties about the economic outlook, and there is a risk that the consumer market will tighten as the year progresses,’ cautioned Marks & Spencer, mindful of the impact of inflation on consumers’ disposable income and facing demanding comparatives through the rest of the financial year.

Primary Health Properties CEO buys after upgrade

‘Nevertheless, we now expect the outcome for the year to show profit growth on 2022-23, and the interim results to show a significant improvement against previous expectations.’

Following the update, broker Shore Capital upgraded its full-year 2024 pre-tax profit estimate by 9% to £550 million and nudged up its 2025 forecast by 4%, from £552 million to £575 million.

EXPERT VIEWS

‘We would not wish to be in a short position in Marks & Spencer going into this statement,’ commented Shore Capital.

‘Whilst so, it is taking a long time for M&S to overcome understandable investment community doubt and scepticism when taking a look at the earnings profile over the years. Whilst so, we do sense a capability, competence, and confidence now within the business, something we have been signalling as building for some time, which suggests more resilience, more robustness, and perhaps that scope for the sequential earnings growth.’

AJ Bell investment director Russ Mould pointed out there have been many false dawns for Marks & Spencer, so it would be understandable if some observers remain sceptical, but the latest upgrade offers ‘further evidence that something real is happening at the retailer’.

Mould continued: ‘The food side of the business has generally performed well over several years but the big transformation is in clothing. Like a dowdy middle-aged dad who gets made over to a sharp new look – Marks & Spencer has really upped its game.

‘The company has been steadily taking market share, helped by the failure and even collapse of some rivals over recent years. It may also be being supported by the fact its traditional demographic is likely doing rather better out of rising interest rates thanks to owning their homes outright and potentially having meaningful cash savings.

‘However, it has also been master of its own destiny, tailoring its offering to appeal to younger shoppers with a big expansion into athleisure, for example. In the background Marks has made meaningful progress on operating costs which could provide an ongoing tailwind to margins for some time to come.’

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Ian Conway) own shares in AJ Bell.

LEARN ABOUT MARKS & SPENCER

Find out how to deal online from £1.50 in a SIPP, ISA or Dealing account. AJ Bell logo

Issue Date: 15 Aug 2023