Marks and Spencer shares plunge despite bumper results
Marks and Spencer shares plunged by eight per cent in early deals this morning as investors digested the company’s Christmas trading update.
The food and clothing retailer told markets this morning that food sales increased 8.7 in the 13 weeks to December 28, and sales of its new Christmas products grew 14 per cent.
This is compared to a market average of 2.1 per cent in the final month of the year, according to Kantar.
However, clothing, home and beauty sales were slightly more downbeat, with sales up just one per cent, although the sector recorded its “biggest week” during the festive period, Marks and Spencer said.
Jeffries’ analysts attributed the drop to profit-taking by investors due to a high price-to-earnings ratio suggesting the stock is overvalued.
Richard Hunter, head of markets at interactive investor, called investors’ lack of confidence in the stock “unfortunate” and due to the “raft of economic challenges to come”.
Russ Mould, investment director at AJ Bell, similarly attributed the drop to “the gloomy tone adopted in the outlook statement”.
“While understandable given the impact of the Budget changes, sticky inflation and higher for longer rates, the comments chime with the current bleak mood around the UK’s economic prospects,” Mould said.
Marks and Spencer warns on economy
The FTSE-100 firm said the outlook for economic growth in the UK “remained uncertain”, and the business “faces higher costs from well-documented increases in taxation” but that there remain “substantial opportunities”.
“We are focused on what is within our control, as we reshape Marks and Spencer for growth,” it said.
Chief executive Stuart Machin added that the firm “[wasn’t] complacent – as a growth business it’s our job to break records… there is much within our control.”
“The external environment remains challenging, with cost and economic headwinds to navigate, but there is much within our control.
“Transforming Marks and Spencer is a marathon, not a sprint, and we go into 2025 shifting up a gear and raring to go as we accelerate the scale and pace of change,” Machin said.
The firm said that customers have begun to buy everyday goods at the grocer and have chosen M&S as an affordable restaurant quality alternative to eating out.
Transformation project still underway
Marks and Spencer has delivered stellar results since 2022, when its post-pandemic recovery plan started to pay off.
Zoe Gillespie, investment manager at RBC Brewin Dolphin, said: “Marks and Spencer had a strong festive period, capping a great year for the business. Food remains, and will likely continue to be, its standout offering – but there have also been positives to take in other divisions as the business undertakes its transformation project.”
“Industry research shows Marks and Spencer’s market share is rising, hitting a record leading up to the end of 2024, while annual sales growth is among the highest of UK supermarkets.
“The shares are up around one-third on a year ago, reflecting the huge progress that has been made and, notwithstanding the challenges in UK retail, Marks and Spencer has good momentum going into 2025.”
Marks and Spencer has invested heavily in clothing and home alongside its food division, with a particular focus on branding and product quality.