Although the Marks & Spencer [MKS] share price has plunged by more than half this year, there are signs that it may be clawing its way back. After hitting a two-year low of 91.56p during intraday trading on 13 October, the shares soared 23% to close at 112.65p on Friday 4 November.
As the 138-year-old retailer gets ready to announce its half-year results on Wednesday, we explore whether the M&S stock price could be regaining its sparkle.
Investor concerns may be priced in
This year’s share price tumble partly reflects investors’ fears for retailers amid the cost-of-living squeeze. The thinking goes that M&S may lose out to cheaper rivals as consumers look to save money on groceries. At the same time, consumers might delay purchases of clothes and homeware. However, according to our chief market analyst Michael Hewson, “there are indications that the bad news could be priced in”.
Still, Hewson warns that upside potential may be limited. “The rebound from the October low appears to be a steady one, but there is some solid resistance at the 129.75p area that was formed by the 2021 lows,” he says.
M&S share price, January 2022 - present
Source: CMC Markets
Even if the stock were to break through that area of overhead resistance, it would still be down by half versus the 52-week high of 263p set on 10 January. “We then have the 200-day SMA [simple moving average] at around 145p which is also likely to be a solid area of resistance,” Hewson adds.
M&S turnaround continues
M&S remains in the midst of a massive transformation that began under former chief executive Steve Rowe, who was succeeded by Stuart Machin in May.
In one of his final speeches as CEO, Rowe said that when he took control in 2016, he began “tackling the underlying issues that had eroded the strength of the business and building the foundations for future growth”.
The strategy was multi-pronged. Rowe helped restore profit and strong cash flow by simplifying business structures, using more digital tools, and revamping the M&S clothing range. There has also been a focus on what the company calls store rotation, drawing inspiration from the way rival Next often changes its store locations. M&S has been getting rid of legacy stores in town centres, opening new branches in out-of-town sites, and placing greater focus on food sales.
The aim is to have fewer but better full-line stores – those that sell clothing, homeware and food. In an investor presentation last month, Machin said that he wants to reduce the number of full-line stores from 247 branches to just 180 within the next three to five years. Machin explained that new, modern stores in towns such as Llandudno have delivered a significant rise in sales, outperforming the old town-centre stores that they replaced. Alongside closing 67 – or one in four – stores over the next few years, M&S also plans to open 104 new Simply Food stores.
M&S, which makes more money from food than it does from clothing, wants to become a destination for large weekly shops rather than a place to top up on bits. The company’s partnership with Ocado has helped increase food sales and enabled M&S to tap in to the growth of online grocery shopping. Meanwhile, a deal with Costa stores to stock M&S food has created another route to market. In more recent news, the acquisition in July of Gist, M&S Food’s main logistics provider, should help M&S manage its supply chains and control costs more efficiently.
Mixed views among analysts
While the company insists that its store modernisation plans are paying off, the total cost is expected to come in at a hefty £1bn. Add in concerns over shoppers tightening their purse strings, and analysts are understandably cautious on M&S shares.
Of 23 analysts polled by the Financial Times in November, five analysts rated the shares a ‘buy’, three thought they would ‘outperform’, 12 rated them a ‘hold’ and three expected them to ‘underperform’. There were no ‘sell’ ratings. Among the 19 analysts offering a 12-month price target for M&S, the median estimate was 125p, representing an 11% increase on Friday’s closing price of 112.65p.
Despite the headwinds facing retailers at the moment, M&S’ transformation plans may give shareholders hope for the future. If the company can weather the current storm, it could be well placed to prosper in the long term. Investor focus is therefore likely to be on the near- and long-term outlook when M&S reports its half-year results at 7am on Wednesday 9 November.