In May 2020, the Marks and Spencer (LSE: MKS) share price hit an all-time low at just 90p. Successive turnaround strategies had failed and online-only retailers continued to take market share. Fast forward five years, though, and the stock has become a multi-bagger, and one of the best performers in the FTSE 100. I must admit that the speed and endurance of the transformation caught me completely off-guard. So where next for the stock?
Full year results
Of course, it has hit the headlines for all the wrong reasons recently following a hack of its systems that froze online orders and resulted in depleted store stock. But the release of its 2025 full-year results yesterday (21 May) calmed investor nerves.
Profit before tax soared 22% to £875m, its highest in 15 years. Driving the increase was a significant growth in like-for-like sales across the food, fashion and home categories.
One of the main reasons I see for the transformation of its fortunes is the store rotation and renewal process. Once the bane of shoppers, store modernisation has lured customers back. Elevating quality and increasing style across its apparel lines has been an undoubted winner.
Food innovation
A part of the business that continues to impress me is food. Several years back the perception was that only well-to-do customers generally shopped at its food outlets. Today is completely different.
Recently, it has built a reputation for being at the forefront of food innovation. Its Remarksable Value line has resonated with value-oriented customers. Another example is the ‘Dine-In’ range. With an ongoing cost-of-living crisis, customers have come to view M&S as a cheaper alternative to eating out
On the back of such initiatives, food sales increased 8.7% with like-for-like growth of 8.6%. Sales growth was driven by volume as the number of transactions and frequency of shop visits increased. The number of larger basket shops rose too, by 13%.
Overall market share rose 27 basis points to 3.9%. Not in the league of Tesco and J Sainsbury of course. But then neither of them is a direct competitor and M&S’s value proposition is totally different.
Cyberattack
The one major fly in the ointment was the announcement that it expects to take a profits hit of £300m from the recent hacking scandal. In clothing, the effects are expected to last well into the summer months.
Beyond that, it’s difficult to assess if the company will face any long-term reputational damage. My feeling is it won’t. However, one of the principal risks it always cites is a breach of security but its systems clearly weren’t rigorous enough. What I would expect now is a significant ramp up in IT security related expenses, which has the potential to impact profitability.
But when I zoom out, the balance sheet is in far better shape than it was. Net debt is down £900m in three years. This provided management with confidence to increase the dividend 20%, to 3.6p per share.
The tide has certainly turned in favour of M&S. I believe there’s plenty more fuel left in the tank. That is why investors should consider holding it for both capital appreciation and dividends.
