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Marks and Spencer shares surge to the top of the FTSE 100 as it smashes analyst expectations

Marks and Spencer posted  its full year results on Wednesday
Marks and Spencer posted its full year results on Wednesday

Marks and Spencer shares have surged to the top of the FTSE 100 today after the company published a bumper set of results.

Shares in the company jumped 9.4 per cent in early deals before pairing gains after it posted a 58 per cent jump in profit before tax for the full year as chief Stuart Machin’s turnaround plan paid off.

Analysts had previously forecast a 35 per cent rise in underlying pre-tax profits to £653m for the year to April, with revenue growth of 8.9 per cent.

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However, the retail behemoth said revenue was up 9.3 per cent on last year figures to  £13bn, helped by demand for clothing and food lines.

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Food sales grew 13 per cent as cash-strapped shoppers sought out its ‘Dine-In’ offer. Clothing sales were also up 5.3 per cent.

Profit before tax and adjusting items came in at £716.4m and adjusted basic earnings per share jumped 45.6 per cent to 24.6p.

Off the back of the figures, Marks and Spencer said it had “the opportunity to restore dividend payments at a sustainable level.” It proposed a final dividend of 2p, giving a dividend for the full year of 3p per share.

Shares in M&S were up over nine per cent in early trade.

Pushing ahead

Wednesday’s update follows a strong Christmas for Marks and Spencer, which employes some 65,000 people across the UK. The business posted a 7.2 per cent hike in total sales growth in the three months to the end of December.

Its continued success in a tricky retail environment highlights the success of chief Stuart Machin and chair Archie Norman’s turnaround plan – which included overhauling its store estate and selling more trendy clothing.

Commenting on the results, Machin said: “Two years into our plan to Reshape for Growth we can see the beginnings of a new M&S. Food and Clothing and Home grew volume and value share ahead of the market and sales increased across stores and online.

“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. We are becoming more relevant, to more people, more of the time.

“We remained unswerving in our commitment to trusted value, offering customers exceptional quality at the very best price. Food’s leading quality perception increased even further with over 1,000 products upgraded and 1,300 new lines launched. Continued progress was made on value perception with £60m invested in price. “

He added: “In Clothing & Home, style perception continued to improve and our decisive lead on quality and value perception was extended. Our commitment to ‘First Price Right Price’ supported full price sell through ahead of last year.”

Marks and Spencer’s joint venture

Marks and Spencer also provided insight into how Ocado.com, the online grocery business it has a 50 per cent stake in, was performing.

Revenue increased 11.2 per cent to £2.47bn, while adjusted earnings before interest, tax, deprecation and amortisation (EBITDA) came in at £26.8m against a loss of £15.1m last year.

While adjusted EBITDA improved, M&S group’s share of adjusted loss increased by around £8m to  £37.3m due to higher interest costs on shareholder loan funding and a write-off of a deferred tax asset in the current year.

Marks and Spencer said although the financial performance of Ocado Retail remains disappointing, the “revenue improvement this year under the new management team has been marked”.

The pair is currently embroiled in a dispute over a final payment related to their online food joint venture.

Ocado and retail giant Marks signed a 50:50 deal nearly five years ago for Ocado to sell the retailer’s food via its online store, with Marks and Spencer paying an upfront sum of over £560m.

It is due to pay an additional £190.7m this August, based on certain performance targets being met.

Marks and Spencer has claimed Ocado has not reached these performance targets, so it is withholding the final payment.

Not a ‘flash in the pan’

The company’s robust results have promoted a wave of positive comments from analysts.

Charlie Huggins, manager of the quality shares portfolio at Wealth Club, commented: “Marks and Spener has had an excellent year and there is now enough evidence to suggest this isn’t a flash in the pan.

The most impressive thing about the M&S turnaround story so far has been the market share gains, in both Clothing and Food. They have been able to achieve this while reducing discounts, which is a good sign. In other words, they aren’t just slashing prices in the hope of getting quick sales growth. They have been focused on reinvigorating branding and designs, which ought to be more sustainable.”

Huggins added: “All-in-all, M&S’ execution has been impressive in a difficult retail environment. Encouragingly, it sounds like there are plenty more self-help initiatives to go for, to keep this momentum going.”

While Mark Crouch, analyst at investment platform eToro, said: “In what has become one of the most emphatic turnarounds seen in British retail in recent years, the Marks and Spencer comeback story is turning into something of a fairytale for investors. Shares are up over 50 per cent in the last twelve months as the business maintains the trend of attracting new customers and accelerating growth.

“Despite inflationary pressures easing, retailers remain fully engrossed in a tug of war for market share, one where quality and value are proving to be key battlegrounds. M&S, renowned for their quality, has applied focus to offering customers significant value along with it and it seems to be working.”