Marks & Spencer (LSE: MKS) shares gained 5% Wednesday morning (20 May), despite a 25% fall in full-year revenue and a 24% drop in adjusted pre-tax profit.
The weak headline figures were a result of last year’s cyberattack. It meant M&S had to suspend all online sales for around six weeks as it worked to recover its systems. And many shelves were left empty as distribution logistics were upended.
But the profit hit was less than feared.
Back to growth
That was an extraordinary year. We were laser focused on our customers, worked incredibly hard to recover our business, and we came out stronger.
— CEO Stuart Machin
For the new financial year, management expects to get back to profit growth — compared to levels from before the attack. And the company pushed on with its transformation plan, in spite of the setback.
The future isn’t without its difficulties, mind. CEO Stuart Machin warned: “Retailers face a triple whammy of headwinds with increased taxation, a greater regulatory burden and ongoing global conflict.”
He added: “At M&S we are unshaken by short-term events.” That’s an approach long-term investors really should strive to emulate. And it looks like they did — the share price wobbled on news of the cyber breach, but there was no major sell-off.
Long-term approach
The relatively calm approach from M&S shareholders takes a bit of the short-term risk off a potentially volatile retail stock, in my eyes. And it makes me think more favourably towards the idea of investing. Although Marks & Spencer shares are still down 8% over the past 12 months, we’re looking at a 120% rise in five years.
In an expression of confidence, the board announced a 16.7% rise in the full-year dividend to 4.2p per share. That’s only a 1.3% yield on the previous day’s closing price. But it’s still marginally better than expected. And in the words of this latest update, it’s “conservative, reflecting the current investment phase.“
There appears to be plenty of cash on the books, with a net £338.2m (excluding lease liabilities). But I’d prefer a company to prioritise its use of cash to boost long-term prospects rather than fill short-term pockets. Sadly, too many seem to have it the opposite way round.
What should investors do?
I confess I’m pulled in two directions here. Going on adjusted earnings per share, Marks & Spencer shares are now on a trailing price-to-earnings (P/E) ratio of 14.2. But based on statutory figures, it’s up at 26.7. In the case of M&S’s management, I think I trust them to make the adjustments fair — and that’s not a bad valuation.
Analysts have a forecast P/E of 10.4 for the 2026-27 year, which also seems attractive. But does it really allow enough safety room to cope with the dangers facing the retail sector — that “triple whammy“?
Retail is just too uncertain for me to want to buy into it now. But saying that, I rate M&S as possibly one of the long-term best in the sector under its current management. And I reckon retail investors should definitely take a closer look.
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Alan Oscroft does not hold any positions in the companies mentioned.
