- Market share gains in clothing and food
- Full-year dividend restored
- Cost savings target increased
Shares in Marks & Spencer (MKS) topped the FTSE 100 leader board on Wednesday, rallying 9.1% to a five-year high of 298.6p after the retail giant’s full-year results breezed past consensus estimates, prompting Shore Capital to proclaim that ‘M&S is back baby!’.
Chief executive Stuart Machin’s turnaround plan is clearly paying off and both divisions have positive momentum, Marks & Spencer’s Food and Clothing & Home arms having generated 12 consecutive quarters of growth apiece.
Brimming with optimism, Machin insisted ‘we are at the beginnings of a new M&S’ as his charge proposed a 3p per share payout, covered more than eight times by earnings, which represented the British retail institution’s first full-year dividend since 2019.
TURNAROUND STRATEGY BEARING FRUIT
Results for the year ended 30 March 2024 revealed a forecast-busting surge in adjusted pre-tax profit to £716.4 million, up almost 60% year-on-year and demonstrating Marks & Spencer’s effective cost management and operational efficiency.
Group sales rose by 9.4% to £13.1 billion, underpinned by 11.3% like-for-like sales growth in Food and an improved performance in Clothing & Home, where like-for-like sales rose 5.2%.
The market share gains in both divisions were achieved while reducing discounts, which is a healthy sign for Marks & Spencer whose emphasis on quality coupled with delivering value is clearly resonating with shoppers.
And with increased free cash flow of £414 million having strengthened the balance sheet further, Marks & Spencer restored the full year dividend with a 3p payout, its first dividend in five years.
Marks & Spencer also increased its cost savings target from £400 million to £500 million, to be delivered by 2027/2028.
WHAT DID THE CEO SAY?
‘Two years into our plan to Reshape for Growth we can see the beginnings of a new M&S,’ said Machin. ‘Food and Clothing & Home grew volume and value share ahead of the market and sales increased across stores and online.’
He added: ‘Both businesses have now delivered 12 consecutive quarters of sales growth and this trading momentum gives us wind in our sails, and confidence that our plan is working. We are becoming more relevant, to more people, more of the time.’
Whilst the retailer still has work to do extracting itself from underperforming high streets, Marks & Spencer also issued an upbeat outlook: ‘Given our track record of delivering volume growth, market share and free cash flow we are confident that we will make further progress in 2024/25 and beyond.’
THE EXPERTS WEIGH IN
Russ Mould, investment director at AJ Bell, said in an environment where so many retailers are struggling, Marks & Spencer has ‘snatched the crown from Next (NXT) and become the shopkeeper which others aspire to be. It’s back on top and 12 consecutive quarters of sales growth cements its new-found status as the UK’s retail champion.
‘Despite this positive situation, there is still a lot more to do. The Ocado Retail joint venture needs to pull its socks up and the international operations aren’t as strong as they once were. By its own admission, Marks & Spencer needs to move faster with efforts to offer a more personalised service. Fortunately, having the core business do well means it can afford to take a bit longer to fix the other bits.’
Julie Palmer, partner at Begbies Traynor (BEG:AIM), added: ‘While the future remains uncertain, easing inflation and the signs of a generally more favourable macroeconomic environment should provide a stable backdrop for M&S to continue its ascent.’
Palmer added: ‘In the current environment where other grocers are fighting to maintain their market share, M&S looks well placed to overtake its middle-class rival Waitrose in due course, something many felt would be impossible not that long ago.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
