When Marks & Spencer (LSE: MKS) shares tumbled out of the FTSE 100 in September 2019, it felt like the end of an era. By then, I’d stopped writing about the stock. I loved its food halls like everyone else. But, I’d lost patience with a clothing arm that never managed to recover lost glories. Unfortunately, that meant missing one of the most dramatic recoveries on the UK market.
Over five years, the Marks & Spencer share price has soared 182%, sending it flying back into the FTSE 100. A large part of that turnaround is down to chief executive Stuart Machin. He took the helm in 2022 after previously running food. On his watch, M&S sharpened its focus, improved product ranges, tightened costs, and restored credibility with investors.
Its revitalised food business continues to gobble up market share, and its clothing and home operation is also much improved. The group has cut costs and closed underperforming sites. It has also invested heavily in data and online capability, and pushed ahead with logistics automation.
This top FTSE stock is back
Last year’s cyber attack is expected to knock an incredible £300m or so off 2025/26 operating profits. However, the shares are still up a modest 13% over the year. This is thanks to a burst of momentum over the last month. They climbed 9.8% in February, which would have turned £10k into £10,980. Not bad for a few weeks’ work.
Food retailers generally had a good month. Tesco shares jumped 16% and Sainsbury’s rose 8%, helped by easing grocery price inflation. This gave shoppers a bit more breathing space and supported margins too.
This followed a strong Christmas, with like-for-like food sales up 5.6% in the 13 weeks to 27 December, hitting £2.72bn. Its 50:50 joint venture with Ocado Retail is flying. Sales are up 13.7% over the period, and M&S own-label sales on the platform rising even faster.
Low yield, okay valuation
The board is investing hard in its future, modernising its food supply chain, continuing its store renewal programme, and planning hundreds of new or renewed food stores under the Simply Food banner. The valuation doesn’t look stretched, with a price-to-earnings ratio of 12.5.
Shoppers are still struggling, though. And higher employer National Insurance contributions and two inflation-busting minimum wage increases have driven up costs, squeezing margins. Net debt has crept up in recent months, although remains modest when lease liabilities are excluded.
So where do the shares go next? Analyst forecasts produce a consensus one-year price target of 430p. If correct, this is up just 9% from today, plus a prospective yield of 1.1%. That suggests a potential total return just above 10%, which is pretty limp fare. Of course, forecasts can’t be relied upon, and many of these will pre-date the February share price hop.
M&S has had a great run and some may be tempted. But I reckon I can find more exciting growth stories on the FTSE 100 today, and with much juicier yields too.
