A rising tide lifts all boats, even M&S

A rising tide lifts all boats — even the good ship M&S.
British retailer Marks & Spencer Group Plc has been a perennial disappointment to investors. But the household name said its underlying pre-tax profit would be above the upper end of its previous range of 300 million to 350 million pounds ($478 million) this year. The shares rose as much as 14%.
And yet, M&S has been in turnaround mode for much of the past 20 years. Investors need to see a sustained level of improvement to be convinced that this recent bit of good fortune is not another false start.
The company best known for its Percy Pig sweets, prepared meals and underwear said that changes implemented by chairman and retail veteran Archie Norman are starting to bear fruit. But Brits flush with lockdown savings and the demise of rivals are having an impact too.
Norman revitalised supermarket Asda Group Ltd in the 1990s. His biggest move at M&S was buying 50% of Ocado Group Plc’s UK retail arm for 750 million pounds. Because online food sales are reported through Ocado Retail, they’re not reflected in M&S’s trading performance. Instead M&S receives a share of the joint venture’s post-tax profit.
Selling M&S food via Ocado does seem to have benefited the broader business. More people have been introduced to the brand thanks to the online supermarket. M&S has also increased its range of products and introduced cheaper items to complement its historic focus on food for special occasions.
In clothing, M&S has cut its range but stocked more of its best sellers, for example dresses and jeans, which have been trending recently. It has also broken its tradition of selling only private-label clothing and now stocks third-party brands, such as environmentally friendly label Nobody’s Child, attracting new customers to the website. Some 14% of people who shop Nobody’s Child are new to M&S womenswear. And it introduced athleisure brand Goodmove just before the pandemic. Add in fewer markdowns, and full-price sales are up 9% on two years ago.
M&S has also been helped by factors outside of its control: Brits are flush with lockdown savings, and many are still not going abroad for their holidays or venturing out to restaurants. These trends are good for M&S’s food business, which is still well suited to preparing a fancy meal at home.
Once you consider the fact that rivals, such as UK department store Debenhams and fashion chain Topshop, have disappeared from high streets, it would be more surprising if M&S were not firing on all cylinders.

—Bloomberg