Market Reaction – Marks and Spencer

22 May 2024

Time Period: Full Year Results for 52 Weeks Ended 30 March 2024

- Profit before tax and adjusting items increased to £716.4m, up 58% from £453.3m in 2022/23.

- Statutory profit before tax rose to £672.5m, a 41.4% increase from £475.7m in 2022/23.

- Food sales grew by 13.0% with an adjusted operating profit of £395.3m, improving margins to 4.8%.

- Clothing & Home sales increased by 5.3%, with adjusted operating profit at £402.8m and a margin of 10.3%.

- Ocado Retail JV reported an adjusted loss of £37.3m, higher than the £29.5m loss in 2022/23.

- International sales (excluding ROI) decreased by 1%, with adjusted operating profit dropping to £47.7m from £67.9m.

- Adjusted return on capital employed improved to 14.1% from 10.6%.

Key Financial Metrics:

- Statutory revenue increased by 9.3% to £13,040.1m.

- Sales rose by 9.4% to £13,109.3m.

- Operating profit before adjusting items grew by 33.8% to £838.6m.

- Profit after tax increased by 16.7% to £425.2m.

- Basic earnings per share rose by 18.4% to 21.9p.

- Adjusted basic earnings per share increased by 45.6% to 24.6p.

- Free cash flow from operations was £413.7m, a significant increase from £170.4m.

- Net debt decreased to £2.17bn from £2.64bn.

- Net funds excluding lease liabilities improved to £45.7m from a net debt of £355.6m.

Operational Highlights:

- Food sector delivered market-leading volume growth, strong innovation, and broadened customer appeal.

- Clothing & Home achieved market-leading share growth and improved style, value, and quality perceptions.

- Store rotation and renewal yielded strong returns, with a pipeline of new stores in development.

- M&S.com experienced accelerated growth, attracting new customers and increasing profitability.

- The Gist acquisition generated quick payback, supporting the development of the Food distribution network.

- Structural cost savings of £180m were achieved, with a five-year objective increased to £500m from £400m.

- Increased free cash flow of £414m improved the balance sheet and net funds position at year-end.

- The company proposed restoring a full year dividend of 3 pence per share.

Outlook:

- Continued focus on driving volume growth in Food and Clothing & Home to meet market share and margin objectives.

- Significant investment in colleague pay, funded by structural cost reductions and other efficiencies.

- Confidence in further progress in 2024/25 and beyond, based on track record of delivering volume growth, market share, and free cash flow.

The company are making some significant progress with higher foods sales, clothing & home sales. While their joint partnership with Ocado Retail continues to cause losses (will they ever be able to make money out of this??). This update would put the company on a PE of 13, a bit on the high side for me personally for the business at this point in time, but I suspect the market will be quite happy.

The share price has overall been on a good upward movement, and continued reductions in UK food prices/inflation will probably help Marks & Spencers.

I am expecting a rise of the price today, and will place a small buy bet.