It is three years exactly since Archie Norman, the chair, said he’d spotted “green shoots” of recovery at Marks & Spencer, and, after a delay caused by the cost of living blight, a bloom has indeed appeared. Pre-tax profits rose 41% last year to £672m (or 58% to £716m ignoring “adjusting” items). Chief executive Stuart Machin, switching the metaphors from botanical to nautical, reckons there is “wind in our sails”.
The performance is definitely radically improved. The only real blemishes were in the international division, where the collection of overseas franchises and partnerships seems to have been an afterthought to the self-help programme at home, and at the joint venture with Ocado in food, which is producing the familiar sight of lively sales growth but bottom-line losses.
The rest, though, is flying. After the hard grind of fixing logistics and so forth under his predecessor, Machin has sharpened the prices and the product offer. Market share in food, home and clothing is on the up. It also helps that M&S finally accepted years ago that it had to get out of so many underperforming second- and third-tier stores in the age of online shopping. Such “full-line” outlets used to number 320, are now down to 240 and the eventual target is 180, with relocations to better sites also being part of the mix. All the while, the number of food-only venues continues to be expanded. Very good: the shares rose 5% to 288p as City analysts upgraded profit forecasts.
But before M&S shareholders get too carried away, they should remember that their company has had at least two moments in its 25-year struggle for re-invention when the bosses of the time thought they’d cracked it.
Back in 2007, profits of £1bn were briefly glimpsed again and chief executive Stuart Rose said M&S was “once again setting the pace” in UK retailing. The post-2008 recession crushed that illusion. Then, in 2016, Marc Bolland bowed out by claiming to have “done the heavy lifting” when he hadn’t. Two years later, Norman was talking about being on “a burning platform”.
There are, though, a few reasons for thinking the latest revival is the real deal. First, M&S has now clocked up 12 consecutive quarters of sales growth in food and non-food, which suggests a genuine turning point was reached. Second, Debenhams has disappeared from high streets and John Lewis’s recovery has barely begun. Third, M&S’s ongoing store “rotation” programme should continue to be a benefit.
Fourth, the balance sheet – the strongest since 1997, reckons the company, after two years of strong cashflow – can plainly deal with any minor relapses. Fifth, Machin is frank that M&S still needs to invest more in its digital operations. Sixth, the international headaches look fixable.
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None of which guarantees a multi-year winning run, but a bracing encounter with a true crisis in the Covid period, when the shares dipped below 100p, may have been beneficial ultimately. It seemed to produce greater commercial ruthlessness on costs and prices, for example. It should have happened years ago.