Why is the M&S share price up 55% this year?

M&S shares are at the top of investors’ shopping lists when it comes to UK supermarket stocks this year. The M&S share price has bagged substantial gains, boosted by a turnaround strategy that is delivering when it comes to sales growth, although there have been some grumblings that a recent AGM lacked the personal touch.

• M&S share price up 55% this year, beating rivals Sainsbury’s and Tesco.
• Sales and profits up as customers and shareholders buy into turnaround strategy.
• Chairman reflecting on negative shareholder reaction to largely online AGM — and lack of sandwiches for in-person attendees.

Supermarket stocks have been bagging up the gains so far this year. Sainsbury’s [SBRY.L] share price is up 24% year-to-date and Tesco [TSCO.L] is up 9.9%. At the top of investors’ shopping lists have been Marks & Spencer (M&S) [MKS.L] shares, with the stock up 55.31% this year, and over 33% in the last 12 months, closing Friday 7 July at 191.5p.

Strong annual results have helped the investment case. Sales shot up 9% year-on-year to £12bn in the 12 months to 1 April 2023. Pre-tax profits were £475.7m, up from £391.7m. Clothing and homeware sales grew 11.5% to £3.72bn, while food sales were up 8.7% to £7.22bn. M&S also reinstated a modest dividend.

The results sent the M&S share price up over 12% following the publication on 24 May, with the stock up a further 17% since then.

Behind the soaring M&S share price and sales is a turnaround strategy that has seen the grocer revamp its food and clothing offerings and modernise its supply chain. A structural cost reduction programme has delivered over £150m in planned savings for the full year 2024.

M&S nabs top award, but shareholders grumble

M&S was awarded Grocer of the Year at the Grocer Gold awards in July, the first time in its history. Adam Leyland, editor-in-chief of The Grocer and chair of the judging panel, said that M&S Food had grown organic customer levels more than any of its rivals through its “impressive food halls, pre-emptive and concerted efforts to tackle its value credentials, [and] dramatic supply chain restructures”.

Yet M&S still needs to keep its shareholders onside. At its London AGM at the start of July, the grocer suggested shareholders would be better off joining online as part of Chairman Archie Norman’s plan to make meetings digital.

Norman had said that businesses were “sleepwalking” into a situation where AGMs no longer engaged shareholders and were inaccessible for those who lived outside of London or were pressed for time.

Those that did attend the AGM in-person were told to join meetings using their phones or laptops. There was no access to board members and no refreshments — free sandwiches had been a fixture of previous AGMs. This did not go down well with some shareholders, with Norman telling the BBC that he would reflect on the negative feedback.

Where next for M&S share price?

M&S’ business has remained strong despite the rise in the cost of living. As a premium brand, its customers are likely to be well-off, with more disposable income. But an extended period of high inflation, or even a recession, will likely weigh on sales.

CEO Stuart Machin has said that the grocer had taken a hit to food margins last year by not passing on some of the negative effects of inflation to customers, adding that food prices were unlikely to come down as fast as they had gone up.

A cost reduction programme should offset some of this, as will any fall in prices, but it’s still something to watch out for. It’s also worth keeping tabs on the fortunes of its joint venture with Ocado [OCDO.L]. The online delivery company recorded £501m pre-tax loss last year as a downturn in food sales failed to offset its pricey solutions business.

Still, M&S has continued to see strong sales this year. According to data from NIQ, M&S’ sales have grown 15.4% in the 12 weeks to 17 June, with only discounters Aldi and Lidl having a better growth rate.

Analysts tracking M&S’ share price have a 198.5p 12-month median target. Hitting this would see a 3.7% upside on Friday’s close.