Marks & Spencer’s full-year sales rose 25% to £17.4bn, driven by the inclusion of Ocado Retail revenue for the first time.
Excluding this, total sales rose 2% to £14.2bn, with Food sales growth of 7% largely offset by an 8% decline in Fashion, Home & Beauty (FH&B) resulting from the cyber-attack.
Underlying pre-tax profits fell by 24% to £671mn, due to disruption from the cyber incident across both Food and FH&B.
Free cash flow fell from a £420mn inflow to an £8mn outflow. Net debt, including lease liabilities, rose from £1.8bn to £2.4bn.
For the year ahead, M&S expects profits to grow relative to 2024/25 levels.
A final dividend of 3.0p per share was announced, taking the full-year total to 4.2p, up 17%.
The shares rose 4.0% in early trading.
Our view
Marks & Spencer’s Food continued to drive top-line growth last year thanks to ongoing efforts to improve its value and quality credentials. But a cyber-attack held back sales in Fashion, Home & Beauty (FH&B) and ultimately caused a sharp drop in group profits. With early signs of the recovery gaining traction, profitability is set to rebound this year, and markets reacted positively on the day.
The cyber-incident looks to have sharpened management’s focus on operational and strategic improvements within the business. To help offset some of the financial impact, the group’s set its sights on achieving £100mn worth of cost savings through efficiency improvements. And long-term plans are in place to expand the store estate and double the size of its Food and online FH&B businesses.
Back to underlying performance, and demand for M&S food remains robust, driven by increased customer numbers and a growing market share. New products and a continued focus on affordability should also help to attract more families, who on average spend more on each shop.
Fashion, Home & Beauty sales were hit hardest by the cyber-attack last year. Despite some heavy discounting to clear old stock, underlying sales trends remain positive, reflecting improved customer perceptions of value, quality, and style. However, the online journey and margins in this division simply aren’t as good as the competition. Big investments are being made to fix this, and if successful, we think it could deliver a strong uplift in profitability.
Ocado Retail, the half-owned joint venture with Ocado, was included in M&S’s results for the first time. Sales growth continued to impress, rising 15% over the year to £3.3bn. While that growth’s well ahead of the broader market, margins are thin. We still think there’s potential to significantly improve Ocado’s productivity. But it will require a lot of work and investment, so it could be some time before it makes a meaningful contribution to the bottom line.
We’re optimistic that the group can bounce back stronger, and markets are expecting underlying pre-tax profits to jump 40% to £0.9bn this year – ahead of pre-cyber-attack levels. The balance sheet remains in decent shape, and there’s a prospective dividend yield of 2.1% on offer. But as always, no dividends can be guaranteed.
M&S remains a healthy business and with expectations now reset, the worst appears to be over. Sitting at a steep discount to peers, the valuation offers attractive upside in our view, making it one of our preferred names in the sector. Still, competition is fierce, and there’s no guarantee operations will recover on management’s timeline.
Environmental, social and governance (ESG) risk
The food and beverage industry tends to be medium-risk in terms of ESG though some segments like agriculture, tobacco and spirits fall into the high-risk category. Product governance is a key risk industry-wide, especially in areas with strict quality and safety requirements. Labour relations and supply chain management are also industry-wide risks, with other issues varying by sub-sector.
According to Sustainalytics, Marks & Spencer’s management of ESG risk is strong.
The group plans to become a net zero business by 2040, with scope 1, 2, and 3 emissions targets in place. The addition of doors and panels on store refrigeration devices is a critical step towards increasing energy efficiency. However, there’s a reluctance to put an obstacle between customers and their products, especially when it’s not commonplace in the market. Product governance is also weak, with a lack of disclosure and no formal policy on the issue in place. The 2025 cyber-attack raises some questions around data privacy.
Marks & Spencer key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.