After reporting a set of results far ahead of analysts’ expectations for the third quarter, Marks and Spencer is set for a bumper Christmas period as its turnaround continues to bear fruit.
Its food division is particularly well-placed to deliver, with sales already up more than seven per cent in the third quarter.
M&S’ food division has historically performed particularly well during Christmas as its festive range of ready-to-eat goods and easy bakes pull in shoppers across the country.
“With the run up to Christmas now in full effect, M&S has gathered momentum at just the right time,” Lucy Rumbold, equity research analyst at Quilter Cheviot, said.
“For groceries M&S is currently in a sweet spot with consumer perception, where its customers do not have the spending constraints that are impacting the other supermarkets,” Rumbold added.
Equity Analyst at Shore Capital Clive Black agreed that M&S was “probably in its best condition approaching a key Christmas trading period than it has been for many years”.
“Such an ongoing performance can feed rating expansion, which means the M&S share price may just have some way to run yet. The profit doors have been blown off again,” he added.
M&S defies the consumer trend
Retailers have been warned to prepare for a tough golden quarter as consumers look for discounts over splashing their cash, and higher taxes announced in the Autumn budget squeeze margins.
“With this being the most important time of the year for the sector, if sales figures continue to follow this trajectory the industry is set for an exceptionally tough festive period,” Sophie Michael, head of retail and wholesale at BDO said.
BDO have predicted that the budget policies, plus the additional costs from implementing the new Employment Rights bill, will put an additional cost burden on the sector of more than £2.5bn annually.
Some reports have suggested that M&S will face costs of £100m, although M&S have described the impact of the budget on its business as “uncertain” and said they have already saved an extra £60m this year.
The success of M&S’ turnaround plan
The supermarket has been on a winning streak since boss Stuart Machin launched a turnaround plan, which has set the company’s shares on an almost-continuous upwards trajectory since the end of 2022.
“A strategy of introducing lower price lines in food has been a success and, in clothing, the company now appears to be better attuned to the appetites of shoppers,” Russ Mould, investment director at AJ Bell, said
“While initiatives like shuttering underperforming stores, opening more food outlets and making improvements to its technology and infrastructure are not rocket science they have undoubtedly delivered for the business,” Mould said.
Rumbold added: “It has taken some time for M&S to right the ship, but we can firmly say that this has now happened and the company is on a good track to further growth.
“With budget speculation now over and the lucrative festive season in full swing, we see no reason why the positive momentum cannot continue.”
