Food sales unable to help M&S avoid impact of the pandemic

The Group also announced whether they would be offering a final dividend this year

Article updated: 20 May 2020 11:00am Author: Joe Healey

  • Group reports adjusted profit before tax of £403mn compared to £511mn the previous year
  • While factoring in an impairment charge of £212.8mn due to costs and associated stock write downs as a result of the coronavirus
  • Investors should focus on positives such as acquisition of 50% of Ocado Retail, which has the potential to transform M&S’ growth potential

Following the release of Marks & Spencer’s final year results shares have risen roughly 4% in early trading. On a like-for-like basis food sales were up 1.9%, yet the much maligned clothing and home lines declined by 6.2%, with sales in the six weeks to 9 May dropping by roughly 75%. Unsurprisingly, the board did not declare a final dividend in an attempt to preserve liquidity in the face of the crisis, and also outlined no plans to pay a 2021 dividend, something investors will be mindful of.

Despite the tough year, where I believe investors will be taking optimism looking forward is on the food side. The acquisition of 50% of Ocado Retail is a valuable investment in online grocery and has the potential to transform M&S’ growth potential in this segment. We all know, particularly throughout this virus, how critical the shift to online has been for consumers, so this could be the boost it needed to start materially transforming the way consumers shop.

All in all, I think investors will be satisfied with the results today. The business has clearly adapted well to changing market dynamics, for example their online delivery exposure which has helped mitigate the negative effects of the crisis. Trading has remained relatively solid, meaning the Group exceeded their Covid-19 scenario cash-flow projection by £150m and the Group continue to evolve both product lines and innovations at a matching pace to societal needs. We do not currently have a view on the stock but it is clear that there a few more obstacles for the Group to navigate.


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Joe Healey

Investment Research Analyst

Following his completion of the graduate scheme, Joe is an Investment Research Analyst covering equities. He holds a BA Hons Business Management degree and is currently studying towards CFA Level II after passing CFA Level I in June 2019.