The Motley Fool

Here’s why the Marks & Spencer (MKS) share price is flying today

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Business development to success and FTSE 100 250 350 growth concept.
Image source: Getty Images

The Marks & Spencer (LSE: MKS) share price was flying in early trading today on news of improved trading. After a horrendous few years for holders, should I now consider this battered retailer to be an excellent contrarian investment?

Why the MKS share price is jumping

Despite the “highly uncertain” trading outlook at the beginning of the year due to Covid-19 constraints, the company said it had seen an “encouraging performance” over the 19 weeks to 14 August. This, it believes, is evidence that the strategy to transform the business is working. 

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Revenue from the company’s Food arm “outperformed” over the period. Thanks to strong trading at its larger stores, sales were up 10.8% on last year. They’re also up 9.6% from two years ago. Even hospitality and franchise are “progressively improving” as restrictions have eased. 

Of course, the food offering at Marks has never really been the issue. It’s the company’s clothing range that’s continually struggled. However, revenue at this division almost doubled (+92.2%) on last year with smaller sales and promotions helping full-price sales rise approximately 9% on pre-pandemic numbers. 

There’s also been a good recovery in sales away from Marks’ home market. International revenue rose a little under 40% over the period, despite sporadic lockdowns and Brexit-related delays. 

All told, group revenue was 4.4% higher than in 2019/20. 

But can this be sustained?

The company is inclined to think momentum can be maintained, even if “pent up consumer demand” may be partly responsible for this return to form. 

Accordingly, the FTSE 250 stock now expects adjusted pre-tax profit to be “above the upper end of previous guidance of £300m-£350m“. I can’t remember the last time when those words were uttered in a statement from the company. No wonder the MKS share price is up 11%, as I type.

That said, I do think it’s important to consider the reasons for me to continue avoiding the stock. 

Inflation concerns

For one, the encouraging outlook is dependent on Covid-19 being effectively beaten. As things stand, I don’t believe we can be completely confident of this. Regardless, the slow recovery in footfall and normal working patterns mentioned today could persist. 

Like many listed companies, M&S could also be impacted by inflation and supply chain issues going forward. To date, it’s managed to mitigate this by reducing costs. However, there’s clearly a limit as to how far this can go. Should prices continue rising, margins could get squeezed even tighter.  

Third, I need to put today’s numbers in perspective. Clothing sales might be back to 2019/20 levels, but I wouldn’t take this as evidence the company has shaken off its ‘frumpy’ image just yet. A rebound isn’t the same as shooting the lights out. Moreover, its physical stores continue to struggle with sales down by almost 20% compared to 2019/20. 

A long way back

As encouraging as today’s update is, I think the MKS share price has a long way to go before we can really be sure the company is back on form. Despite rising 45% over the last year (including today’s gain), the stock has still roughly halved in value since 2016. Oh, and there’s no dividend stream either.

In conclusion, I’ll be keeping an eye on Marks for now. For the reasons mentioned above, I won’t be adding the shares to my own portfolio just yet. 

Inflation Is Coming: 3 Shares To Try And Hedge Against Rising Prices

Make no mistake… inflation is coming.

Some people are running scared, but there’s one thing we believe we should avoid doing at all costs when inflation hits… and that’s doing nothing.

Money that just sits in the bank can often lose value each and every year. But to savvy savers and investors, where to consider putting their money is the million-dollar question.

That’s why we’ve put together a brand-new special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation…

…because no matter what the economy is doing, a savvy investor will want their money working for them, inflation or not!

Best of all, we’re giving this report away completely FREE today!

Simply click here, enter your email address, and we’ll send it to you right away.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.