Marks & Spencer (LON: MKS) shares have risen by 77% year-to-date — and by 138% since early October 2022 — to 224p today. Having been re-promoted by FTSE Russell to the FTSE 100 last week, the retailer will likely be further boosted by the index inclusion, as fund managers and passive investors alike increase buying pressure.

Of course, past performance is not an indicator of future returns. M&S shares were changing hands for 257p apiece in January 2022, and have experienced significant volatility over the past five years of trading.

But where next?

FTSE 100: Marks & Spencer shares

In a trading update on 15 August, the company informed investors of its ‘strong trading and outlook for the year,’ and increased its profits guidance based on ‘good progress on the programme to reshape M&S.’ Importantly, the FTSE 100 retailer thinks that interim results on 8 November will ‘show a significant improvement against previous expectations.’

Over the 19 weeks to 12 August, food sales rose by 11% while clothing and homeware rose by over 6%. And the company is selling more items at full price, in stark contrast to competitors who are in the throes of price cuts. For context, annual revenues came in at £11.9 billion in May, a full £1 billion higher than in the prior full year.

However, the FTSE 100 retailer noted that ‘there remain considerable uncertainties about the economic outlook, and there is a risk that the consumer market will tighten as the year progresses.’ Further, chief digital and technology officer Jeremy Pee is leaving to return to Canada.

But while the macro outlook is uncertain, the British Retail Consortium saw annual shop price inflation fall to 6.9% in August, the lowest reading since October 2022. And together with KPMG, the organisations reported that sales of non-food items in the UK had their best month since February, as customers ‘splurged on self-care’ — with retail sales rising by 4.1% in August compared to August 2022.

BRC CEO Helen Dickinson advises that ‘the sales figures reflected the improvement in consumer confidence in August, and retailers hope this general upwards trend will carry on.’

Flagship issues

M&S launched legal action against the government this month over the decision to block the demolition of its flagship shop on Oxford Street. Operations Director Sacha Berendji argues that Secretary of State Michael Gove ‘wrongly interpreted and applied planning policy, to justify his rejection of our scheme on grounds of heritage and environmental concerns.’

It’s worth noting that M&S had previously seen two years approvals at every stage up to the final decision — with support from neighbouring businesses, inspectors, and relevant local authorities.

Gove specifically disagreed with an expert’s view that demolition was the ‘only realistic option.’ CEO Stuart Machin has labelled the decision ‘utterly pathetic,’ labelling Gove as ‘anti-business’ and necessitating a review of its position at Marble Arch after a century of operating at the flagship.

Given the plainly spelt-out problems with the current building, it’s perhaps unlikely that another operator is waiting in the wings.

Where next for Marks & Spencer?

Machin has implemented a clear turnaround plan — the company’s revenue, brand power and social media presence have all demonstrably improved. This month it added Estée Lauder Fragrance to its growing roster of third-party brands, and ambitions for further growth are evident.

It was only in 2019 that the company dropped out of the FTSE 100, with profits collapsing and a share price near a record low, though at that point it had further to fall still.

It’s telling that while the focus has been on a digital turnaround, the recent update noted ‘strong growth in stores, and more subdued growth in online’ in at least one sector. With Pee exiting, there may be an opportunity to further upgrade its web presence and fast-growing ‘Sparks’ loyalty scheme.

While some operators may be struggling or indeed failing outright through this inflationary period, well-run FTSE 100 retail companies across the value chain are outperforming: M&S, Next, Card Factory, Sainsbury’s, B&M European Value Retail et al are all performing admirably in 2023 despite vastly different target consumers.

But having won a hard-fought promotion, M&S is now operating a different competitive field — one where a half-dozen top-performing FTSE 250 companies will be perennially vying to take the company’s newly granted spot on the FTSE 100 roster.

But Machin seems up for the challenge.