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Where next for Marks & Spencer shares?



The food and clothing retailer unveils figures this week

Source: Bloomberg

It’s all change at Marks & Spencer, which posts full-year results on Wednesday. Current chief executive Steve Rowe is also set to leave this summer after six years in the job as part of the company’s succession plan. He stands down at the full-year results this Wednesday and his last day is the AGM on 5th July. Rowe has been with the company since he was 15.

Steve Machin is to take over as CEO, while Kate Bickerstaffe will become co-CEO and Eoin Tonge chief strategy and finance officer. Investors will want to know what the new management team’s plans are for the long-established retailer. Its restructuring programme has finally begun to bear fruit, with a handful of earnings upgrades last year.

They will also be watching closely to see how significantly inflation and input costs will affect the retailer going forward and what it is doing to mitigate this.

M&S faces inflationary headwinds, possible online tax

Other retailers, including AB Food-owned Primark and Tesco have already announced that they are facing tough inflationary headwinds.

Marks & Spencer also recently criticised the Treasury’s proposed tax on online retailers. "This rationalisation will always start with the least profitable parts of a business - which, in the case of multi-channel retailers, will more often than not be High Street stores,” said chief finance officer, Eoin Tonge of the proposals.

"Therefore it is likely that, far from helping the High Street an online sales tax will damage shops and our high streets further, particularly in areas that require new investment to bring them back to life."

Strong Christmas trading for Marks

However, the retailer posted an upbeat Christmas trading statement in February, with food sales up 12.4% to £1.9 billion on the year 2019 to 2020 and clothing and home sales up 3.2% to £1.1 billion compared to the same period.

"Trading over the Christmas period has been strong, demonstrating the continued improvements we've made to product and value,” outgoing CEO Steve Rowe said at the time. “Clothing and home has delivered growth for the second successive quarter, supported by robust online and full price sales growth.

“Food has maintained its momentum, outperforming the market over both 12 and 24 months. The market continues to be impacted by the headwinds and tailwinds that we reported in the first half, but I remain encouraged that our transformation plan is now driving improved performance."

International sales rose 5.1%, with online sales more than doubling. Marks & Spencer also strengthened its balance sheet and paid off its December 2021 bond maturity with cash, signing a new £850 million revolving credit facility, which matures in June 2025. It also sold two warehouses for £42.5 million in cash.

Management said in February that it expected the “strong trading” it had seen in the early part of the quarter “to be sustained” and that it was more confident that it would deliver on its increased earnings guidance. It expects full-year profits before tax and adjusting items of at least £500 million, assuming “no further material restrictions or lockdowns.”

Trading at 135.8p, the shares are down 48% since hitting a high of 260p in January, hit by the wider market sell-off. While difficult times lie ahead for the retail sector, Marks & Spencer shares are worth buying for the longer term.

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*Based on revenue excluding FX (published financial statements, June 2020).

Piper Terrett | Financial writer, London
24 May 2022


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