Is Marks & Spencer finally starting to turn around?

Marks & Spencer shares jumped 10% on Wednesday despite the company reporting a £201.2m loss. Saloni Sardana explores whether the company is worth investing in.

Shares in Marks & Spencer jumped by more than 10% to a one-year high today as it reported its full-year results for the year to 27 March. 

The 137-year-old retailer lost £201.2m for the year – its first annual loss in 94 years – compared to a £67.2m profit for the same period to March 2020. It also has no immediate plans to restore its dividend payments until debt has been cut and the company is in healthier financial shape. 

Meanwhile, it plans to continue closing branches as part of a turnaround plan. It has already shut or relocated 59 of its main stores and shed 7,000 jobs across both its branches and within its management division, and has plans to close another 30 shops over the next ten years. And its ever-troublesome clothing division shows no obvious signs of improvement.

However, while M&S warned that it’s still not clear how “the recovery will develop”, it reckons that it will return to profit strongly next year, forecasting a profit of £300m–£350m. And perhaps more importantly for investors, its tie-up with online grocer Ocado appears to have boosted its all-important food sales, contributing £78.4m of net income. 

M&S reported a 6.9% rise in food sales, whereas net revenues from its clothes and home divisions plunged more than 31.5%, due to the impact of lockdown. 

The group currently has 254 “full-line stores” selling food, clothes and homewares. However, it plans to change its branch composition as part of the turnaround plan. The company will open 17 additional or expanded stores over the next 23 months. But as chief executive Steve Rowe told investors: “They need to be the right stores, in the right location, with the right services.”

Is Marks & Spencer a buy?

So is it worth taking the plunge? As Catherine Shuttleworth, founder of retail consultancy Savvy Marketing, puts it, investors shouldn’t read too much into these results given the volatile year retailers have faced in light of the pandemic. 

"There is some glimmer of hope as we come out of it, but it's one of those years that we can't draw too many conclusions from, because it's been so unbelievably different and something that no retailer could have reasonably planned for,” she tells the BBC. 

She stressed that investors may see “real benefits” from M&S’s transformation programme and that there has never been a better time to “tie up with a food delivery business” than during a pandemic, a reference to M&S’ partnership with Ocado.

The UK high street has certainly come back to life since the economy re-opened and with the UK’s vaccination scheme well advanced the hope has to be that it remains open. So retail in general has been a decent investment. It’s also clear that M&S has been priced for disappointment and that even a glimmer of hope – in the form of a very promising start to its Ocado tie-up – has helped to send the shares sharply higher. 

That said, M&S has been a constant turnaround candidate for a long time now, and investors could be forgiven for approaching with some scepticism, particularly when its clothing unit remains an unknown quantity, as Ben Marlow points out in The Telegraph. In all, while the stock remains reasonably cheap-ish – on a price/earnings ratio of about 13 – it’s hard to get overly excited about M&S when rivals such as Next have consistently done so much better in similar areas.

Recommended

Will energy prices go down in 2023?
Personal finance

Will energy prices go down in 2023?

The Energy Price Guarantee will now be extended, but how much will your gas and electricity cost you in 2023?
9 Dec 2022
What is an annuity?
Glossary

What is an annuity?

Annuities are growing in popularity as rates increase. But what is an annuity, and how do you get one?
9 Dec 2022
National Grid gets ready to pay households to cut energy use this weekend
Personal finance

National Grid gets ready to pay households to cut energy use this weekend

The cold weather and unfavourable wind conditions have raised concerns about electricity supplies, prompting the National Grid to consider paying hous…
9 Dec 2022
Asda cuts fuel prices by 5.5p a litre
Personal finance

Asda cuts fuel prices by 5.5p a litre

Asda is now selling the cheapest fuel. We look at if fuel prices are now set to come down further and how to save on costs.
9 Dec 2022

Most Popular

Is it cheaper to leave the heating on low all day?
Personal finance

Is it cheaper to leave the heating on low all day?

The weather is getting colder and energy bills are rising, but is it really cheaper to leave the heating on low all day or should you only turn it on …
1 Dec 2022
Radiator vs electric heater – which is cheaper?
Personal finance

Radiator vs electric heater – which is cheaper?

We compare the costs, pros and cons of radiators and electric heaters and see which one will help keep your energy bill as low as possible.
28 Nov 2022
The pros and cons of smart meters – should you switch?
Personal finance

The pros and cons of smart meters – should you switch?

A smart meter can help you keep tabs on your energy usage, but is it better than a regular meter? We take a look at smart meters vs regular meters.
2 Dec 2022