(Bloomberg) —
Marks & Spencer Group Plc’s stock soared Wednesday as the U.K. retailer raised its profit forecast for the second time this year, indicating that a long-promised turnaround might finally be at hand.
Shares in M&S surged as much as 21% in early London trading after the chain said it expects profit to be about 500 million pounds ($678 million) this fiscal year. In August, it predicted about 350 million pounds. The improved outlook is off the back of strong food sales and a recovery in clothing and online sales.
A household brand with hundreds of stores across the nation, M&S has been trying to revamp its business for at least the last decade, with successive management teams trying and failing to return to a time when the chain generated profits topping 1 billion pounds.
For years, M&S has been bogged down by a large and expensive store portfolio and a clothing division whose designs were often lambasted for being old-fashioned and ill-fitting.
Under Chief Executive Officer Steve Rowe and Chairman Archie Norman, M&S’s latest revival plan has focused on cutting costs, investing in technology to drive online sales, expanding its food business and improving the range and design of apparel. They’ve also been moving to reduce the retailer’s reliance on sales promotions.
Turnaround Hopes
Rowe said the strong interim performance and profit upgrade shows the turnaround is finally on track.
“Given the history of M&S we’ve been clear that we won’t overclaim our progress,” he said in a statement Wednesday. “But underlying performance is improving, with our main businesses making important gains in market share and customer perception.”
During the first half, M&S’s clothing division fared solidly, with revenue down only 1% despite some store lockdowns. Full-price clothing sales also rose by 17.3% and the retailer said it gained market share.
What Bloomberg Intelligence Says:
Marks & Spencer’s updated pretax-profit guidance isn’t a complete surprise, given high 1H earnings expectations have been exceeded, yet the concentration on full-price clothing sales is encouraging. That, as well as adapting to online, see the long-troubled clothing division positioned for further growth.
— Charles Allen, BI retail analyst
Full-Price Focus Positions M&S for Longer-Term Expansion: React
Food sales, which have surged during the pandemic as people eat more meals at home, rose by 10.4%, and M&S said it gained market share here, too. The chain has been expanding its range of food so that consumers can do more weekly shopping there rather than just picking up a ready-meal for dinner on the way home from work.
M&S is also expanding in online food retail following its joint venture with Ocado Group Plc.
Wednesday’s share-price gain comes on top of a 43% increase earlier this year, lifting the company’s market value to 4.4 billion pounds. M&S is once again worth more than online retailers Boohoo Group Plc and Asos Plc, which had earlier surpassed M&S in market capitalization.
The chain reported first-half pretax profit of nearly 270 million pounds, beating market expectations.
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