Over a year ago the Marks and Spencer share price was at two-year lows and not far off its pandemic lows of 2020 as pessimism abounded about the UK economy. Since then, the M&S share price has more than doubled, and while it has not recovered back to its 2022 peaks, it's not far off, returning to the FTSE 100 in the process, although in recent months the upward momentum has stalled.
The turnaround plan first initiated by previous CEO Steve Rowe has gone from strength to strength under new CEO Stuart Machin, controversial Christmas ads notwithstanding. In May, the retailer announced a strong set of full-year numbers, with statutory revenue rising by 9.6% to £11.93bn, £1bn higher than last year and well above expectations of £11.7bn, with a strong performance from both food and general merchandise. At the time management floated the prospect of a return of the dividend in the upcoming fiscal year.
A profit upgrade in August reinforced this optimism and today’s H1 numbers have seen management replay that optimism with an interim dividend of 1p per share. First-half profits before tax rose 56.2% to £325.6m on the back of a 10.8% rise in statutory revenue to £6.13bn. Management have also managed to reduce net debt by £370m, as well as returning to a positive cash flow situation.
On the actual sales numbers themselves, food retail was once again a standout performer, with 11.7% increase in like-for-like sales, along with an improvement in operating margin, while in general merchandising like-for-like sales rose 5.5%. The Ocado business also showed signs of an improvement customer wise, even though losses there increased to -£23.4m.
There was a minor sting in the tail with management warning that H2 was looking increasingly uncertain, even with the prospect of a positive Christmas trading period, and that pre-tax profit was likely to be weighted towards the last six months. Having said that, October trading momentum has been positive according to management, although the caution over the second half of the year is understandable given the combined impact of a higher interest-rate environment, concerns about a slowing economy, and deflationary forces impacting consumer sentiment, along with an uncertain geopolitical outlook.
All in all, despite the heavy pessimism around the UK economy, the fact that we've seen positive updates from Next, Associated British Foods owner Primark and now M&S, suggests that while the economic backdrop is difficult, it's not all bad news. Something to hold on to perhaps as the nights get longer into year end.
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