M&S’s 27-year turnaround pays off

By Kathleen Brooks, research director at XTB.com

Nvidia is not the only company set to report massive earnings data on Wednesday. M&S has posted some stellar growth figures for the previous quarter, suggesting that the UK consumer is alive and well and still willing to splash the cash on their premium products, especially food. Profits from its food business rose by a whopping 59% compared with last year. The food section posted operating profits of more than £395mn, which was higher than the £352mn expected by analysts. Food sales were higher by 13% YoY. Like-for-like food sales rose by 11.3%, beating analyst estimates of 9.59%.

The transformation of M&S

Typically, M&S has done well with its food products and struggled with clothing and homeware. However, a shift has happened at M&S in recent months. It’s fashion offering (for women at least) has gone off the charts, tailoring is good quality for a decent price, and the style of its ranges can also compete with the higher end ‘affordable luxury’ brands for sale elsewhere. It has not only made M&S a go-to for the fashion conscious, but it has also accumulated multiple brands that are attracting new customers and helping it to truly become a one-stop shop for the discerning consumer. Thus, it is no surprise that M&S has seen operating profits at its clothing and homeware segment in the UK rise by 24% YoY to £402mn, with sales rising more than 5% YoY.

A 27-year turnaround is finally reaping fruit

Overall, pretax profits were £716.4mn, higher than the £685mn expected. Added to this, M&S will resume its dividend and pay 3p a share later this year. This is the first time the retailer has paid a dividend since 2019.   A multi-decade turnaround for the firm has left it in its best financial health since 1997, and it ended its financial year with £46mn of net funds. It’s taken a long time to get here, but M&S has been working on this turnaround for years. Food and clothing sales have delivered 12 consecutive quarters of growth, which has cemented the reputation of this British stalwart.

Stock price surges, and there could be more to come for this FTSE star

Overseas sales were a weak point, but the market is not focusing on this. The fact that the company reported stellar numbers for both its food and clothing businesses is a good base for future growth. The outlook for this fiscal year was also strong, which has contributed to the rise in the share price. The M&S share price is higher by 8% so far on Wednesday, and its gains YTD are more than 7%. The stock price rise in the past year is an exceptional 82%. M&S and Ocado, its online food delivery partner, are the top performers in the FTSE 100 today, and M&S is the second-best performing stock in the UK blue chip index in the last 12 months, behind Rolls Royce. With results like these, there could be further upside to go. 

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