Could Marks and Spencer’s shares rise further?

Marks & Spencer reports full-year results on Wednesday and investors will want to know how the retailer is faring amid the ongoing cost of living crisis and inflationary headwinds it faces. Times are difficult in the retail sector as costs remain high and customers continue to see their wallets squeezed by rising interest rates and inflation.

M&S: bumper Christmas trading

Nevertheless, the company unveiled a bumper post-Christmas trading update in January, with total UK like-for-like sales up an impressive 7.2% to £3.3 billion. Group sales also rose by 9.9% to £3.6 billion in the 13 weeks to 31 December, while M&S Food grew market share. Food sales rose by 10.2% - an increase of 6.4% on a like-for-like basis.

“M&S sustained trading momentum through the peak quarter and both food and clothing and home have delivered strong growth,” said chief executive Stuart Machin. M&S Food outperformed the market on volume and value in the critical four-week Christmas period for the second year running and reached its highest ever recorded market share.

"Clothing and home delivered another outstanding performance, maintaining its market leadership position with its highest market share in seven years.”

Retailer showing resilience in cost of living crisis

Marks & Spencer may prove more resilient to the macro-economic pressures given that many of its customers tend to be wealthier.

While the company acknowledged the continued inflationary issues and cost headwinds, it said at the trading update that it maintained its previous earnings guidance set out at the half-year results in November. The company expects to deliver full-year results for 2023 at a similar level to last year’s figures of adjusted profits of £522.9 million.

Meanwhile, clothing sales increased by 8.6% on a like-for-like basis. International sales also rose by 12.5% at constant currency rates boosted by strong sales in India and the Middle East.

The company reports sales from its Ocado joint venture separately but said that its goods typically made up 30% of a basket on Ocado.com during the period. One concern is that Ocado continues to rack up losses, going £500.8 million in the red for 2022 as customers bought fewer items and it continued to invest in new technology.

At 161.5p Marks & Spencer shares have had a good run and are up 20% this year. Analysts at broker Citigroup currently have a buy recommendation on the shares and recently upgraded their price target on them to 165p. However, analysts at Jefferies Financial are more cautious and have a hold recommendation with a price target of 160p.

The shares are still some way off their three-year highs of 249.99p and are worth buying, given inflationary cost headwinds are expected to ease later this year and Marks is better positioned than many of its peers to withstand them.

Past performance is not a guide to future performance