Marks & Spencer (LON:MKS) May Finally Be On The Right Path

7th Mar '23 by Roland Head

8 comments 1999 reads

High street stalwart Marks and Spencer (LON:MKS) has been in turnaround mode for nearly a decade. But the group’s Food franchise remains valuable. Meanwhile, M&S’s recent performance suggests the company’s aggressive restructuring under chairman Sir Archie Norman may be delivering results.

Improved financial performance means that this defensive business has earned a high StockRank. With the shares trading close to their book value, is it finally time to buy into this recovery story?

Bull points:

Very high StockRank reflects improved financials, modest valuation
Strong trading in 2022 suggests turnaround is working
M&S Food joint venture with Ocado provides modern, scalable online presence
Investment in digital and better-performing modern stores
Supply chain restructuring should improve efficiency

Bear points:

A tired brand that’s lacking innovation?
Pre-Christmas rebound in high street trading may have been due to one-off factors, e.g. postal strikes
Profits are expected to fall in FY23/24 due to difficult economic outlook

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About the stock

Marks and Spencer operates in the Consumer Defensives sector and is part of the Food & Drug Retailing industry group. However, the company’s Clothing & Home business could also be said to fit into the more cyclical Specialty Retailers industry group.

The group’s shares currently trade at 160p on the LSE Main Market. Marks and Spencer is a member of the FTSE 250 and has 2.0bn shares in issue, giving a market cap of £3.2bn. Free float is 99%, so liquidity should be excellent.

The StockRanks are very favourable for Marks & Spencer, with a particularly strong MomentumRank score.

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Recent share price action has been positive, probably helped by a strong Christmas trading statement in January and the broader market rally seen so far this year.

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About the opportunity

Marks and Spencer is classified as a Super Stock, highlighting broad strength across its Quality, Value and Momentum factor scores. Although the company’s Speculative rating implies some additional risk of volatility, the outlook appears to be positive at present:

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If the firm can navigate the difficult year ahead successfully, it could be well positioned for a return to growth.

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gmtrader

7th Mar '23

Good post. While I do not hold m&s I do have a great deal of respect for Archie Norman. Having met him a few times in the 90’s I have been impressed. He did do a great job turning around ASDA when he was their CEO.

Saxonboy57

an excellent analysis. I cannot see myself buying their shares anytime soon

WarrenTMiller

I see the inexorable rise of Aldi as only a part of the reason that M&S will struggle in the longer term. I was talking to an old friend about M&S while I was reading the above and I said to her the other problem they have is that there is a perception that their clothes are targeted at older people. I am 67 and she is 70. Neither of us would even consider buying clothes from M&S. If we won't who will. I'm a great believer in buying into trends that affect me every day. I bought into the rise of Fevertree at £8 as a gin drinker and their appearance on supermarket shelves. I sold at £20ish when I thought they were overvalued. I don't see M&S as cheap. I just thing they are in long term terminal decline. But then what do I know. I bought Independent Insurance!

doctor dave

8th Mar '23

The idea that everyone will just buy from Amazon now (a pandemic blip) is over. People (some people) like shopping. They like going out, seeing what they are buying, feeling it, trying it out, chatting. . They won’t be sent the wrong item in the wrong colour, or something that’s ten times smaller than they realised. Solid M&S should benefit!

Lucky dip

I prefer Costco on all metric in the retail sector. It is still a growing company inside and outside the North America. It's not dissimilar to John lewis. Treat the worker, customers well and the shareholders benefit too. It has a high PE as it is considered a growing company.

Dragon

"I am 67 and she is 70. Neither of us would even consider buying clothes from M&S. If we won't who will."

Maybe all the other 50, 60, 70 year olds.
Why won't you buy them?

Aargh Aitch

I'm a former holder (I set a stop loss and forgot about it, until my broker sold them). I'm not in any hurry to buy back in, other than for sentimental reasons; the shares had been my Dad's and Tom Spencer was born round the corner from me in Skipton. We have a blue plaque but oddly no M&S of our own until about ten years ago.

A recent visit to M&S and Next in Bradford was very revealing. Next had it's clothes and homewares as a series of rooms that gave quite a well set up impression(Prob. better for shoplifting too). In contrast Marks's had a traditional clothes on rails schtick with worse lighting, I think Next uses daylight mimicking bulbs. A few odd points: in Next the clothes on the racks complemented each other, nothing stood out as distinct. Are their clothes styled to look good in the shop? If so how do they look on you? Does Next have less stock/ variety, it certainly felt like it.

Suits in both terrible, little or no canvassing and all the lapels fused. The last time I needed a new suit I ended up having it made up for me by a tailors in Leeds. Money well spent, as things obviously haven't got better since. A couple of years ago the Guardian did a report on what happens to town centres when M and S closes, where they opined that often Marks's was the last shop in a medium sized town that would sell well made clothes; I can only conclude they were talking about Women's clothes not menswear.

Odd note, Next had a home display with a ball of fluff (Like when your hoover spits back) on a bobbly lilac rug, Even that looked complementary, in Marks's it would have stook out like a sore thumb.

Maybe Marks and Spencer is best considered as a kind of ethical supermarket (Seen as accountability/ traceability feels like the direction of travel here), perhaps a proxy for unlisted Booths and Waitrose, that just happens to have a bank and a clothes shop attached. One being a plus as most people hate their bank but seem to trust M and S, the other perhaps being a minus; do you know anyone who buys clothes there? NB for as long as I can remember Marks and Spencer has been treated as a bellwether for the health of "The High Street", the outlook usually gloomy but they are still there!

WDWombat

22nd May '23

I am only looking today as there has been an upbeat article in the Sunday Times (21 May https://www.thetimes.co.uk/art...), citing principally management changes and improving clothing sales. It focuses principally on the newish boss of foods but reminds us of the overweening influence of clothing and concludes with a paeon from a big young (female) fan of their clothes on The Times staff. i am tempted.

Marks & Spencer (LON:MKS) may finally be on the right path

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Roland Head

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