Marks & Spencer Earnings: Solid Fiscal 2023 Ahead of Expectations Boosted by Food Business

Marks & Spencer reported another robust set of results in fourth-quarter 2023. Group sales growth was 9.9% (versus 8.3% in our model) driven by food sales, which were up 8.7% (like-for-like sales up 5.4%), and the clothing and home division, which grew robustly by 11.5% (like-for-like sales up 11.2%) both ahead of our expectations (food sales up 6.5% and clothing and home sales up 11% in our model). Management remains cautious on its outlook, adding it expects modest growth in revenue (versus up 3% in our model) with cost inflation and wage rises to offset the delivery of over GBP 150 million in cost-savings from the firm's structural cost-reduction program. International sales were up 11.2% with profits recovering despite the impact of the exit from Russia and European Union border-related costs. Profit-before-tax and adjusting items were ahead at GBP 482 million versus GBP 420 million in our model with the main driver of the beat being stronger-than-expected profitability in U.K. food and U.K. clothing and sales (GBP 572 million versus GBP 522 million in our model). Marks & Spencer's share of Ocado Retail's net income-to-group results was negative GBP 29.5 million as expected (negative GBP 20 million in our model). Therefore, management expects adjusted profit before tax for the year to start from a lower base (GBP 70 million-GBP 80 million lower than guidance of GBP 500 million adjusted profit before tax versus GBP 422 million in our model). Given a widespread improvement in operating performance across the business and stronger balance sheet, the firm also expects the board to restore a modest annual dividend to shareholders in November, in line with our estimates (we model a GBX 5 dividend in fiscal 2024). We don't expect to materially change our GBX 185 fair value estimate for Marks & Spencer after accounting for these results. Given the strong beat in top-line growth and profits, shares were up as high as 13% intraday, moving the stock into 3-star territory.