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Marks & Spencer share price sparkles as it upgrades its profits outlook

Marks & Spencer share price: people walk past a branch of M&S

Marks & Spencer [MKS.LSE] reported £187.3m in pre-tax profits for the six months to October, compared with a loss of £87.6m in the year-ago period, boosting the M&S share price 16% on Wednesday morning. Does this mark the start of a genuine turnaround for the high street retailer?

M&S share price climbs 16% as half-year profits soar

After many years of false dawns has CEO Steve Rowe finally unlocked the potential behind a recovery in Marks & Spencer’s share price? This was a question that was being asked at the end of Q1, and today’s outstanding half-year numbers appear to suggest that the answer may be yes, after numerous false starts over the past ten years.

Previous turnaround plans had good intentions but ultimately failed to deliver. However, the performance of the M&S share price, up 71% year-to-date, suggests that investors sense that progress is finally being made, after M&S's demotion from the FTSE 100 at the end of 2019.

Perhaps the company's spell out of the limelight helped, allowing management to take difficult decisions with respect to some of the chain's stores, a process that was accelerated by the pandemic.

In Q1, the company surprised the markets with a strong start to its trading year, driving share price gains. Food stores led the way on revenue growth, as M&S's partnership with Ocado started to reap rewards, helping lift the company's guidance.

Today’s half-year numbers have built on the gains seen in Q1, with the shares reaching their highest levels since December 2019. The retailer upgraded its full-year forecast for the second time this year, as half-year profits after tax came in at £159.9m.

Revenue growth was driven by a 10.4% rise in food sales, while the serial underperformer – the clothing and home business – delivered a 17.3% rise in full-price sales.

M&S raises full-year outlook, but warns of supply chain costs

Looking to the second half of the year, management said that initial trading has remained in line with the solid performance seen in Q2, though bosses warned that various supply chain issues could increase costs.

That said, M&S upgraded its outlook on full-year pre-tax profit, which it expects to be in the region of £500m – a significant improvement on the £300m to £350m announced at the end of Q1.

There was no mention of restoring the dividend this year, but the return of dividends at some stage is under review, according to the company. However, if M&S continues to perform as well in the second half of the year as it did in the first half, talk of dividends could heat up when full-year numbers are released six months from now.

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