M&S clothes are back in fashion – how about its shares?

Marks & Spencer is a national institution, which means it provokes strong feelings. These conflicting sentiments were displayed this week after the 140-year-old retailer announced higher-than-expected profits of £716m, thanks to a jump in sales of fashion and food.

Sceptics preferred to view these results as a flash in the pan. But they seem unaware of the advances at the retailer. These have laid the foundations for yet more improvement.

As usual, the M&S believers – including me – smiled at detractors’ remarks and felt a bit sorry for them. They are enjoying neither the food nor the clothing, and depriving themselves of potential future gains.

It is easy to see why some struggle to have faith. Over many years, share performance was dismal. It even fell out of the FTSE 100. A string of chairmen and chief executives promised to transform it, and failed.

So why should we believe things are different now?

In the words of chief executive Stuart Machin, the latest results are only ‘the beginnings of a new M&S’. He has masterminded what some regard as a cultural revolution. But Machin is famous for being what he calls ‘positively dissatisfied’ – in other words, a workaholic perfectionist.

He is unlikely to be inclined to sit about on an M&S Scandi-style Copenhagen armchair, however comfortable, declaring his mission accomplished.

I have the M&S cynics to thank for my decision to buy its shares in 2022 and to recommend them. Most of my wardrobe is bought at the store.

Back then, Marks’ merchandising was somewhat uninspiring, making it difficult for some to believe I really had purchased chic outfits from it.

People would sometimes even accuse me of trying to pass off designer label garments as high street buys.

I ignored this rudeness and backed the transformation of the clothing, food and home departments at M&S. I hoped it would boost performance, alongside strategies as adding brands including Baujken and Hawes & Curtis to the online offer.

This has been the case: the company says it is in the strongest financial health since 1997.

Since November 2022, the shares have risen from 140p to 300p. Although this is an increase of 114 per cent, I have no intention of selling.

The shares are 35 per cent below the level of a decade ago, so have further to go. But I am also taking a bet on M&S’s ability to build on its achievements.

Plus, the doubt that still surrounds it may be depressing the shares, meaning they will pick up as and when it evaporates.

Ian Lance, co-manager of the Temple Bar investment trust says: ‘What is so exciting is that it feels like this turnaround strategy has some way to go – yet this is not yet being reflected in the share price as many investors remain sceptical of the recovery story.’ The share price of this trust, which has a stake in M&S and other British household names, is at a 7pc discount to its net asset value, presenting what could be a bargain opportunity to benefit from the recovery.

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Signs of the determination to achieve this emerged as profit numbers were unveiled.

The more effective Marks social media machine sent a promotion on how to do a weekly grocery shop for £25. Households are being encouraged to view M&S not just as a source for top-up treats, but as a supplier of fairly-priced staples.

Although M&S operates has a loyalty scheme, Machin does not favour ‘tricksy’ Tesco-type arrangements, where card holders pay less but surrender personal data in the process. Chris Beckett, equity researcher at Quilter Cheviot says: ‘M&S is taking market share from larger supermarkets. As a result, it has a best-in-class profit margin, yet remains sub-scale compared to the Big Four supermarkets.’

M&S should be able to further exploit this position.

As the results statement spells out ‘M&S leadership is expected to be sleeves-rolled-up’ throughout the new stage. And, as always, I’ll be a very interested observer.