The cyber attack that wrecked the first half of FY26 is behind it. Shore Capital says the company trades at a steep discount to rivals and the recovery is real
Marks and Spencer Group PLC (LSE:MKS) closes its financial year on 28 March, having absorbed one of the most disruptive periods in its recent history.
A cyber attack in the first half of the year forced stock clearances, scrambled availability and left the clothing and homeware division carrying inventory it had not planned to hold.
Shore Capital, the broker, published a note on Friday saying the damage is contained and the business is set up for a strong year ahead.
The broker left its profit forecast for the year ending March 2026 unchanged at £655 million, down from £876 million the year before. That reduction reflects the direct cost of the attack. Shore Capital's forecast for FY27, the year starting in April, is £960 million, which would represent a return to growth and take M&S's earnings per share to 33.9 pence.
Food has recovered
The Food business was the first division to bounce back from the disruption. Sales suffered for a few weeks after the attack due to stock availability problems, but recovered quickly.
NielsenIQ data for the 12 weeks to 21 February showed Food sales growing 6.5% in volume terms. Shore Capital expects that momentum to show up in the full-year trading results, scheduled for 20 May.
M&S plans to accelerate its Food store estate through FY27, targeting around 2% new space growth, up from roughly 1% previously. The company has set a goal of growing Food sales by 10% over the three years to FY29 through a combination of new sites and continued growth in existing stores.
Clothing and homeware is clearing the decks
The Fashion, Home and Beauty division had a harder year. The cyber attack disrupted buying, left surplus stock sitting in warehouses and forced two waves of clearance selling in January and March.
Shore estimates that stock levels will still be around £100 million above normal at the year-end, largely because M&S is holding onto core lines such as socks, underwear and T-shirts rather than selling them at a discount.
The broker found encouragement in recent full-price trading. Management indicated to investors that customer response to new ranges has been positive in the weeks of normal trade since the clearances ended.
Middle East exposure is limited but real
Shore addressed the impact of the war in Iran on M&S's cost base. On energy, the company is around 75% covered for shop costs through FY27, which provides a degree of protection.
Logistics costs are less covered: M&S routes its freight around the Cape of Good Hope rather than through the Red Sea, which adds distance and fuel cost to its supply chain.
The company also has around £100 million of revenue tied to the UAE through its franchise partner Al-Futtaim. Sales there are holding up, supported by mall traffic, but Shore Capital flagged that a prolonged conflict would put pressure on that income.
The valuation case
Shore's core argument is that M&S is trading at a price that does not reflect its recovery. The stock sits at 344p, implying a price-to-earnings ratio of 10 times next year's forecast. That compares to Next at 16 times, Tesco at 15.3 times and Sainsbury's at 13.8 times.
The broker's long-term model, which assumes M&S doubles its Food business from a 2022 base and adds £1.5 billion of online clothing and homeware sales, points to earnings per share of around 47p, from 30.6p in FY25. That scenario would also generate substantial free cash flow, giving management options on the balance sheet it does not currently have.