Morningstar

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

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Securities In This Article
Marks & Spencer Group PLC
(MKS)

Marks & Spencer MKS 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.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Ioannis Pontikis, CFA

Director of Equity Research in Europe
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Ioannis Pontikis, CFA, is a Director of Equity Research in Europe for Morningstar*. He covers European grocers and global food and beverage companies like Tesco, Unilever, Nestle, and Danone, and manages a team of eight analysts across the Financials and Consumer sectors. He also leads Morningstar’s Equity Research Valuation Committee, advancing the firm's valuation methodology through projects such as developing new methodologies, refining our valuation model, and enhancing the efficacy of our ratings.

Before joining Morningstar in 2017, Pontikis spent six years on the buy-side, co-managing a $100M long/short equity fund and leading teams in applying machine learning to stock and equity factor selection models. He developed the fund's valuation and risk assessment framework, achieving strong risk-adjusted performance. Prior to this, Pontikis worked at Nestle S.A. in Athens, focusing on financial reporting, budgeting, and auditing proposals to improve processes.

Pontikis research has appeared in numerous media outlets including Bloomberg, CNBC, Reuters, Guardian, Frankfurter Allgemeine Zeitung among others.

Pontikis holds a bachelor’s degree in business administration from the University of Piraeus’s and a master’s degree in accounting and finance from the London School of Economics. He also holds the Chartered Financial Analyst® designation and studying towards an advanced post-masters degree in portfolio and risk management.

* Morningstar Holland BV (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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