Shares in Marks & Spencer (MKS) soared on Wednesday after forecasting-beating annual results. Here's what our analyst thought of the earnings.
Key Morningstar Metrics for Marks & Spencer Stock
• Fair Value Estimate: 230p
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High
We don't expect to materially change our 230p fair value estimate for Marks & Spencer after accounting for strong full-year results and rolling our model forward. Shares trade in 2-star territory.
Strong Foundation for Growth at Marks & Spencer
Marks & Spencer reported strong fiscal 2024 results with market share gains across clothing and food. Group sales were up 9.4%, driven once again by food sales, which were up 13%, with like-for-like sales up 11.3% driving volume and market share gains to 3.7% from 3.55%. However, more importantly, consistent volume growth was ahead of the market, up 6.7% and 9.7% in the fourth quarter and third quarter respectively versus flat for the market, according to Kantar.
The food segment's adjusted operating profit of £395.3 million implies a margin of 4.8% versus £248 million and 3.4% margin respectively last year with the remarkable improvement reflecting operating leverage and benefits from sourcing and structural cost-savings. The clothing and home division grew by 5.3% (like-for-like sales up 5.2%) leading to robust market share gains of 10% from 9.6%, according to Kantar. The clothing and home segment's adjusted operating profit increased to £403 million or a 10.3% margin, from £324 million and 8.7% respectively last year as a result of higher gross margins, in turn, supported by full-price sales and cost-savings.
The international business' priorities have been reset under the new leadership to build a stronger foundation for long-term growth and address the recent and persistent underperformance as sales continue to disappoint, being down 1% in the year. Ocado Retail had previously reported sales growth of 11.2% and adjusted EBITDA of £26.8 million with Marks &S pencer's share of the adjusted loss increasing though due to higher interest costs. We don't expect to materially change our 230p fair value estimate for Marks & Spencer after accounting for strong full-year results and rolling our model forward. Shares trade in 2-star territory.