Stock Watch

Will the M&S share price continue to recover after Q3 results?

CMC Markets

The sparkle had surely deserted Marks and Spencer at the last results release in November, as the company slipped to its first first-half loss in 94 years. This was yet another blow for the retailer in a turbulent year, which had already seen the M&S share price drop from 213p in January to lows of 88p in May, and again in November.

The M&S share price has regained some momentum since then, climbing to 130p over the festive season, and shareholders will hope that this week’s results help boost that further.

Tough 2020 for the M&S share price

It has not been a great 2020 for M&S, largely down to the fact that it has a much greater exposure to general merchandise than other retailers in the same sector. This side of the businesses took the greatest hit in the March and April lockdown, which led to the retailer’s first-half loss of £17.4m.

Clothing and home was the biggest contributor to the loss, though this downturn was hardly unique to M&S. In the eight weeks up until August in which stores were open, total sales fell 29.9%, with store sales down 47.9%. With another national lockdown now in effect, M&S will hope that the damage to the ‘golden quarter’ leading up to Christmas was limited, although given the tier-based restrictions of December, results are not expected to be particularly bright.

Ocado partnership continues to deliver

The M&S food offering, along with the recent start of the deal with Ocado, has already started to reap benefits. The deal provided a significant boost in the first half, with a 47.9% increase in revenue in that particular channel. This positive result was music to investors’ ears, helping the Marks & Spencer share price on the road to recovery.

The joint venture led to a sales jump of 35% for Ocado in the third quarter of 2020, as customers welcomed the M&S range, and lockdowns continued to accentuate the demand for grocery deliveries. The one downside is that the Ocado deal only covers a limited 700 home and lifestyle product lines, compared to 4,400 food lines, which suggests there could be scope to expand this to general merchandise.

Tomorrow's Q3 numbers should give an insight into whether the deal has given the M&S share price some much needed Christmas cheer, while returning the group to profit.

Job losses to continue

The plan to reduce headcount by 7,000 has continued, and the latest results are expected to reflect the associated costs. The company hopes to offset some of these with new positions in online roles.

Explaining the job losses in August, M&S noted a “material shift in trade,” with the retailer stating that it was "too early to predict with precision where a new post-Covid-19 sales mix will settle. We must now act to reflect this change".

M&S has also announced that there are no plans to pay back the £80m of business rates relief that it received during the 2020 lockdown, with CEO Steve Rowe stating that “we’re very grateful for the government help and we’ve used it in the right way to keep the balance sheet afloat".

M&S reveals its results at 7am on Friday 8 January. What will this mean for the M&S share price?