Marks & Spencer has delivered an impressive set of full-year results, but investors now face a conundrum.
On one hand, the retailer has posted its highest profit in 15 years, grown market share across its core businesses, and strengthened its balance sheet. On the other, a significant cyber attack has disrupted operations and will leave a deep mark on short-term earnings.
The key question for private investors is not whether M&S is in trouble (it clearly is not) but whether now is the time to buy, hold, or step aside.
Full-year results: A business firing on all cylinders
The results for the year to March show a retailer that has not only stabilised but is delivering consistently strong financial performance.
Adjusted pre-tax profit came in at £876 million, about 5% ahead of expectations and well above both Deutsche Bank’s estimate of £850 million and the market consensus of £840 million.
Earnings per share rose to 31.9p, while the dividend was raised 20% to 3.6p.
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Food continues to be a key driver, with like-for-like sales up 8.6% and full-year revenue of £9 billion.
Operating profit rose 25% to £484 million, with a margin of 5.4%, in line with expectations. In clothing, sales rose 3.5% to £4.2 billion, again supported by a strong fourth quarter.
Like-for-like sales were up 4.4% for the year, and 5.9% in the final quarter alone. Importantly, profit margins in clothing rose to 11.2%—comfortably ahead of forecasts.
Marks also strengthened its balance sheet, ending the year with £440 million of net cash excluding leases. Free cash flow reached £443 million, a solid number that reflects the operating strength of the business.
Cyber attack: short-term hit, long-term opportunity?
And then came the cyber attack. The retailer disclosed an expected impact of £300 million, split between £100 million in food (largely wastage) and £200 million in clothing (mainly lost sales).
Online clothing sales were especially affected and are not expected to fully recover until August.
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Deutsche Bank estimates the hit is equivalent to £20–25 million per week, and believes the overall cost is larger than anticipated. Still, the bank argues the clarity provided by management should help investors move on from the incident and refocus on the underlying progress.
Crucially, only around £100 million of the estimated loss has been incurred so far, suggesting that things may yet turn out slightly better.
The company is already moving to future-proof its operations. Capital expenditure will rise to between £600–650 million this year, from a previous forecast of £540 million.
While some of this reflects the acceleration of IT upgrades, Deutsche Bank notes that the increase is largely unrelated to the cyber attack and is justified by improved returns on growth investment.
The cyber event will clearly affect reported profit for this financial year, but Shore Capital’s pro-forma forecasts, excluding the disruption, suggest that Marks & Spencer was on course to deliver £935 million in adjusted pre-tax profit in FY26.
That would have marked a further 7% rise on an already high base. As it stands, reported profit is expected to fall to £632 million, with earnings per share of 21.7p. However, analysts see a strong rebound in FY27, forecasting £990 million of profit and earnings per share of 34.4p.
What should private investors do?
The outlook for the business beyond the next few months remains bright. Marks & Spencer has shown it can win customers, grow sales and deliver margin improvement. It has momentum in both food and clothing, a reshaped store estate, and a clearer digital strategy than at any point in recent memory.
The cyber attack is painful, but it is also one-off in nature and unlikely to have lasting consequences. Indeed, it may accelerate overdue investment in systems and infrastructure that will make the company more resilient in the long run.
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With shares trading at 368p, the stock is valued at just over 10 times expected earnings for FY27, and 5.6 times enterprise value to earnings before interest, tax, depreciation and amortisation, attractive multiples for a business with a growing dividend and cash to invest.
Deutsche Bank sees this as an opportunity for investors to revisit the M&S story, arguing that the fundamentals remain sound.
For long-term investors, this is a test of nerve. The cyber attack has unsettled the near-term picture, but the case for owning Marks & Spencer has not fundamentally changed.
Those with a medium- to long-term view may find current weakness a chance to build or increase positions. Short-term traders, by contrast, may wish to wait until clarity improves around the pace of recovery.
In sum: Marks has been hit, but not derailed. And for investors who can look past the next few months, the value on offer is increasingly hard to ignore.