9 January 2025
If you are covering Marks and Spencer’s latest results, please see the following comment from Chris Beckett, head of equity research at Quilter Cheviot:
"Marks & Spencer delivered a solid performance over the crucial third quarter and the Christmas trading period. The food business continues to thrive, buoyed by more affluent customers who are less affected by the current cost-of-living pressures. Food volumes are up 7%, but with inflation contributing to this growth in the background. Customers are not only spending more but new shoppers are also being attracted to M&S's premium food offerings.
"On the clothing front, while growth has been evident, it fell slightly short of expectations. Nonetheless, there were encouraging signs as the quarter progressed, with the exit rate showing improvement. M&S managed to gain market share in a challenging and declining retail market. Online sales grew by an impressive 12%, although this was offset by a decline in clothing sales through bricks-and-mortar stores. The rationalisation of its physical footprint appears to be paying off, though marginal stores remain under pressure.
"From a valuation perspective, M&S trades on around 12x this year’s earnings—a relatively modest multiple. Expectations for earnings have been upgraded, and while there is much to like about the company’s performance, caution remains. M&S is still operating in a high-volume, low-margin environment, and while profit growth has been achieved, there are headwinds ahead. Rising National Insurance costs and broader cost-of-living challenges are expected to eat into measures designed to boost margins.
"Overall, it was a good Christmas period for M&S, but management remains cautious in its outlook, and the stock has derated accordingly. While the company is clearly on a positive trajectory, external pressures may weigh on its ability to sustain upgrades in the near term."
