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Retail and supermarket stocks have a terrible 2022. Marks and Spencer Shares (LSE:MKS) were not spared from the worst of it, falling almost 50%. However, the latest Q3 update shows a bright future, so I would buy the stock.
Information about Marks And Spencer Group Plc
Last updated 18-01-2023, 10:21:51 GMT
Current price
149.75 p
Change it
-1.15p (-0.8%)
Close Price
150.90 p
Open Price
152.00 p
Offer
149.70 p
Inquire
149.80 p
Range of days
149.60p – 152.00p
Year Range
91.56p – 229.87p
Volume
1,985,702
Average Volume
8,928,653
District market
294,882,808,500.00p
Earnings Per Share
15.66 p.m
Top Marks for top numbers
Marks and Spencer shares have FTSE 250The most actively traded stocks in 2023 so far. This has been helped by an excellent Q3 trading update which saw the retailer post some top numbers.
| Metric | Total sales growth | Like-for-like sales growth |
|---|---|---|
| Food sales | 10.2% | 6.3% |
| Clothing and home (C&H) sales | 8.8% | 8.6% |
| Total UK sales | 9.7% | 7.2% |
| International sales | 12.5% | N/A |
| Total sales | 9.9% | N/A |
In fact, the grocer outperformed every supermarket in terms of basket value over the Christmas period, helped by the acquisition of Gist and an uptick in M&S Collection sales. Consequently, CEO Stuart Manchin cited record market share for food, while C&H’s market share reached a seven-year high of 10%.
Building growth
As a result, management has chosen to accelerate its goal of removing old stores in favor of newer ones, which are being converted by the end of FY26. The first phase of the initiative has already started with 20 stores in the pipeline. It is expected to start operations by the end of FY24.
The aim is to transform the current 247 stores into 180 full-service stores and more than 100 food sites, with a focus on retail parks. This is a wise move because of the lower cost to operate and the larger size of the basket.
Sales in the pre-installed and newer stores are better than the older variants. And with a relatively short payback period of two years, it only makes sense to do it as soon as possible. Therefore, it is not surprising to see that the return on capital employed by the company has been increasing lately.
What’s more, this move should help the group’s balance sheet. The British company owns about 40% of the property. As such, the move should see rent arrears fall by around £300m, with the retail giant taking over the Debenhams site.
That said, it is worth noting that Marks and Spencer does not have the purest balance sheet. Regardless, it’s still commendable to see debt decrease with increasing cash flow over the years.
If the FTSE stalwart continues its positive momentum, a return to dividend payments could be as soon as April. If that happens, I can imagine that there will be a lot of excitement around the stock as it will attract many investors looking for passive income.
However, I wouldn’t wait until then as the stock is trading at a bargain price right now. When compared to its historical P/E and many supermarket markets, M&S certainly looks cheap despite its recent rise.
| Metric | Marks and Spencer | Tesco | Sainsbury’s |
|---|---|---|---|
| Price-to-Earnings (P/E) ratio. | 9.7 | 20.0 | 10.0 |
| Price-to-sales ratio (P/S). | 0.3 | 0.3 | 0.2 |
| Price-to-book (P/B) ratio. | 1.0 | 1.2 | 0.7 |
| Price-to-earnings growth (PEG) ratio | 0.1 | 0.1 | 0.1 |
With the board citing full-year guidance and wholesale inflation also holding back, I expect margins to begin to expand in the medium term.
German can be sold for 1.45 Euro. However, I agree more with it JP Morgan at an ‘overweight’ rating and a price target of £1.55. Although this is not currently much of a rise from the current level, I think the long-term potential for Marks and Spencer shares has not been priced in. Therefore, I will be looking to buy shares if my preferred is launched UK shares on its platform.
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