Marks & Spencer (M&S) smashed forecasts with a 58% rise in annual profit on Wednesday and announced its first yearly dividend since 2019, suggesting the British retailer may finally have found a recipe for revival after two decades of trying.
Shares in the 140-year old food and clothing group, one of the biggest names in UK business, surged as much as 10% to a six year high of 300 pence after it said it was in the strongest financial health since 1997, and predicted more to come.
After years of failed turnaround efforts, M&S under CEO Stuart Machin is reaping the rewards of a costly investment drive to improve the quality and value of its clothing and food, upgrade its technology and e-commerce operations, modernise its supply chain, and overhaul its store estate.
“What is so exciting is that it feels like this turnaround strategy still has some way to go and yet this is not yet being reflected in the share price as many investors remain sceptical of the Marks recovery story,” Ian Lance, fund manager at Redwheel, one of M&S’s biggest investors, said.
M&S made profit before tax and adjusting items of 716.4 million pounds ($913 million) in the year to March 30, ahead of analysts’ forecasts of 665 million to 705 million pounds and the 453.3 million pounds made in 2022/23.
Sales rose 9.4% to 13.1 billion pounds, with food sales up 13.0% and clothing and homewares up 5.3%.
“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,” said Machin.
M&S is targeting a 1 percentage point increase in market share in both the clothing and home and upmarket food divisions over the five years to 2027/28, with adjusted operating margins of more than 10% in clothing and home and over 4% in food.
But it delivered the margin targets already in 2023/24, with 4.8% in food and 10.3% in clothing and home. Its market share increased 40 basis points in clothing to 10% and by 15 basis points in food to 3.55%.
The most recent industry data showed M&S was Britain’s second fastest growing store-based grocer after discounter Lidl.
“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,” M&S added.
