Marks & Spencer Group Plc shares rose to the highest in almost two years after its progress with a decades-long turnaround allowed the UK food and clothing retailer to reinstate a dividend for the first time since 2019.
Profit before tax and other items rose 75% to £360 million ($442 million) in the six months through September, M&S said Wednesday. Sales of food led the advance as M&S seeks to pull in customers for their full weekly shop with lower prices. The stock rose as much as 11%, making it the biggest riser on the FTSE 100.
Revenue from clothing and homeware also increased despite unseasonably warm weather in September. M&S said profit will likely be weighted toward the first half and warned that favorable market conditions might worsen in 2024.
“Marks & Spencer is doing many things right, but there is more to do, which is true of the shares as well,” wrote Jonathan Pritchard, an analyst at Peel Hunt.
Chief Executive Officer Stuart Machin is showing traction with M&S’s overhaul after many previous management teams struggled. The retailer is investing in new stores while closing underperforming outlets and stocking more popular third-party brands like Jaeger, Crocs and Estee Lauder. Investment reached £450 million in the first half net of disposals.
Only Beginning
“We’re only just beginning,” Machin said in the statement Wednesday. “Lots done, lots to do, lots of opportunity.”
The shares have almost doubled this year, giving the company a market value of £4.9 billion. In comparison, UK clothing retailer Next Plc is worth £9.5 billion.
The results were a “broad-based beat” across M&S’s divisions, wrote Izabel Dobreva, an analyst at Morgan Stanley.
Clothing and home sales grew 5.7% in the first half with particular growth in holiday garments and denim. Store sales outperformed online and profitability was boosted by lower freight rates and cost reductions in logistics.
M&S has been working to reverse the image of dowdy, ill-fitting clothing. A recent clothing campaign fronted by actress Sienna Miller attracted new customers and sales were ahead of expectations.
M&S is gearing up for Christmas, with sales of its food-to-order range up 25% on last year. Party food was launched early for the festive season and has also posted a double digit increase on last year while sales of women’s party outfits are up 50%.
The grocer said it’s passing on lower food costs to customers wherever possible. M&S has lowered the price of 200 items and locked prices on 150 products until 2024.
M&S is opening nine stores this month, totaling £80 million of investment. That’s part of a broader effort to close 67 underperforming shops and open 100 new format food outlets in the next couple of years, presenting customers with a brighter, less cluttered shopping experience.
Thorn in Side
M&S said the potential of its grocery joint venture with Ocado Group Plc has yet to be realized as the business reported a £23 million loss. Ocado Retail is in the early stages of restoring profitability, according to the company. Still, collaboration is increasing and more M&S food is being stocked by Ocado.
CEO Machin said it will take at least three years for the potential of the Ocado tie-up to come to fruition.
“We have to be very objective,” he said, speaking on a call with reporters. “They’re running about 75% of capacity, so at the moment it’s pretty high fixed costs.”
The venture is the “thorn in the side” of M&S, wrote Richard Hunter, head of markets at Interactive Investor.
--With assistance from James Cone.
(Updates with executive comments)
