ii view: M&S follows hack with strongest finances in years

Full-year results to 29 March

• Revenue up 6% to £13.82 billion
• Adjusted pre-tax profit up 22% to £875.5 million
• Final dividend of 2.6p per share
• Total dividend for the year up 20% to 3.6p per share
• Net debt including lease liabilities down 17% to £1.79 billion

Chief executive Stuart Machin said:

"Three years ago, we introduced our Reshaping M&S for Growth plan with the objective of protecting the magic of M&S and modernising the rest. Executing that strategy has delivered a third consecutive year of growth in sales and market share, profit and improving return on capital. 

“Disciplined capital allocation and a much stronger balance sheet have put M&S on a robust financial footing, increasing resilience and creating capacity for future growth. M&S has net funds of over £400 million and we are in our best financial health for nearly 30 years.

“Overall, last year was another year of strong performance, and there are so many opportunities still ahead of us.”

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ii round-up:

Marks & Spencer Group (LSE:MKS) is a retailer of clothing, homewares and food, both in store and online in the UK and overseas. 

Its UK food business now includes a 50% joint venture with delivery company Ocado Group (LSE:OCDO). 

The UK and Irish food business generated most revenues over this latest financial year at 65%, followed by the UK and Irish clothing and homeware division at 30% and the International business the balance of 5%. 

For a round-up of these latest results announced on 21 May, please click here. 

ii view:

Started in 1884, M&S today employs over 60,000 people. The retailer’s focus under its ‘Reshaping for Growth’ plan home in on store rotation, supply chain improvements and enhancing the company’s technology. 

Marks wants to create 180 more productive full line stores, down from a current 230, as well as 420 bigger, fresher food stores within an existing owned and franchised portfolio of just over 1,000 in the UK and Ireland. International stores across 29 countries total 395, down from the prior year’s 408. 

For investors, an expected hit to operating profit of £300 million from its cyber-attack incident is an overhang. Both sales (-7%) and profit (-3%) for the International business retreated over this latest financial year. Its 50:50 joint venture with Ocado continues to lose money, while a forecast dividend yield of 1.6% compares to 3.5% or more at fellow retailers Tesco (LSE:TSCO) and Sainsbury (J) (LSE:SBRY).   

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On the upside, improving sales continue to beef up the group’s balance sheet, with cash held prior to store lease liabilities increasing almost ten-fold year-over-year to £438 million and net debt including store leases falling 17% to £1.79 billion. Insurance payouts may yet reduce the hit from cyber-crime to below £300 million, with the attack also speeding up its technology changes and investment. Group transformation plans are ongoing including new management at the International business, while cost savings of £120 million were made over the past year, with the ambition to achieve cumulative savings of over £500 million by March 2028. 

In all, and while the impact of the cyber-attack injects some caution, strengthening group finances and a consensus analyst estimate of fair value sat above 420p provide room for longer-term optimism. 

Positives: 

• Product and geographical diversity
• Targeting cost savings

Negatives:

• Competition not standing still
• Uncertain economic outlook

The average rating of stock market analysts:

Buy