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M&S turnaround takes market by surprise

Percy Pig has been a big seller

Shares in Marks & Spencer closed 16.5% higher yesterday, pushing the retailer to the top of the FTSE 250 index after it raised its annual profit outlook for the second time in less than three months.

The company reported gains in market share during the first half and forecast a 40% in adjusted profit this year to about £500m.

Investors piled into the stock, pushing the price 32p higher to 226.5p, representing a 60% uplift his year.

The turnaround has seen profit before tax and adjusting items for the half-year rise to £269.4m compared to a £17.4m loss last time. The figures include £47.5m of UK business rates relief, and a net rates charge of £50.3m in the period.

M&S reported consistently strong growth in food sales of 10.4% and an improving margin mix which helped to deliver an increase in operating profit before adjusting items compared to 2019/20.

Clothing & Home delivered a substantial improvement in profitability with sales down 1% on 2019/20 despite lockdown extending into the first week of the period.

Sales grew in Q2 and overall full price sales were up 17.3% for the period. Operating profit before adjusting items was £156.2m as compared to £109.6m in 2019/20.

Chief executive Steve Rowe said: “It is clear that underlying performance is improving, with our main businesses making important gains in market share and customer perception. The hard yards of driving long term change are beginning to be borne out in our performance.”

Ross Hindle, analyst at Third Bridge, said that the online tie-up with Ocado “looks tasty” for M&S.

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“However this bright spot can’t mask M&S’s structural challenges, particularly in clothing & home, where the store experience, fashion proposition and clothing range remains far off its competitors.

“M&S’s proposition continues to draw consumers towards the upper end of the target 35-55 target age range, with the Group unable to shake its “out-dated” fashion label.”

AJ Bell investment director Russ Mould, said: “Something spectacular must have happened since August for Marks & Spencer to upgrade earnings guidance once again.

“Back then, it believed pre-tax profit for the year would be above the upper end of a previously guided £300 million to £350 million range. Now it’s talking about profit hitting £500 million which is quite some jump.”



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