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M&S shares jump as it beats expectations

The retailer expects “modest” sales growth next year
May 24, 2023
  • Dividend to return in November
  • Food and clothing divisions grow market share

Shares in Marks & Spencer (MKS) jumped by 13 per cent after the retailer posted its full-year results. It is not difficult to understand why. Adjusted profit before tax came in at £482mn – £50mn higher than consensus estimates. While this represented a year-on-year decline of 7.8 per cent, management stressed that the earlier figure included almost £60mn of business rates relief. 

The group now intends to bring back a “modest” interim dividend in November, and has forecast “modest” revenue growth in 2023-24.

Food was the standout performer in the year to 1 April 2023. Like-for-like sales rose by 5.4 per cent against tough comparators, and the group increased its market share by 20 basis points to 3.6 per cent, outperforming all major full-line supermarkets. While its operating margin was hit in the first half of the year by efforts to keep prices low, this paid off in the end, as the resulting positive effect on customer volumes drove sales.

The Clothing & Home division, which has struggled in the past, also performed well, growing like-for-like sales by 11.2 per cent. In-store purchases were particularly high, suggesting M&S’s attempts to make its shops more appealing are paying off. 

Now for the bad news. The group’s partnership with Ocado resulted in a net loss of £29.5mn, compared with a net profit of £13.9mn in 2021-22. Management blamed this on “pandemic reversion” and the impact of cost inflation. 

The group’s own ecommerce operations are also feeling the strain. In Clothing & Home, online adjusted operating profits margin tumbled from 9.1 per cent to 5 per cent, due to sourcing cost pressures and investment in digital improvements. Omni-channel growth is a key focus for the company, and the latest figures cast doubt over how resilient its digital infrastructure actually is. 

M&S is trading on a forward price/earnings ratio of 10.8, which is broadly in line with its five-year average. The question for investors is whether its turnaround plans are convincing, and whether the latest figures portend future growth. Analysts at Panmure Gordon are sceptical, arguing that price investment “produced a one-off boost” and that the group’s “worn-out legacy assets” could hamper progress.

We’re a little more optimistic, but would like more evidence of sustainable growth before we commit. Hold. 

Last IC View: Hold, 110p, 9 Nov 2022

MARKS AND SPENCER (MKS)   
ORD PRICE:184pMARKET VALUE:£ 3.6bn
TOUCH:183-184p12-MONTH HIGH:185pLOW: 92p
DIVIDEND YIELD:0.0%PE RATIO:10
NET ASSET VALUE:143pNET DEBT:91%
Year to 1 AprTurnover (£bn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
201910.484.22.5013.3
202010.267.21.303.90
20219.16-209-10.1nil
202210.939215.7nil
202311.947618.5nil
% change+10+21+18-
Ex-div:-   
Payment: