Long/Buy

Maintain
Marks and Spencer Group Plc
Published on: 13th October 2023
Store Managers Report LFL Sales Ahead of Consensus
Estimates; Majority of Managers Report Rising
Revenue, Footfall, and ABVs for the Quarter; Food RESEARCHER
Joao Alves, Equity Analyst
Sales Outpaced Clothing; M&S Continues To Raise
COMPANY NAME
Prices, Albeit Strategically; Over 80% of Store Marks and Spencer Group Plc

Managers Report Optimistic Expectations Over the COMPANY STOCK

TICKER
Next 6 Months MKS LN

REGION
United Kingdom

Key Highlights GICS SECTOR

We maintain a Long/Buy recommendation on Marks and Consumer Staples

Spencer plc ahead of earnings. GICS INDUSTRY GROUP

Consumer Staples Distribution
& Retail
M&S Store managers reported LFL sales growth of 10.5%
YoY, surpassing consensus estimates, driven by consistent GICS INDUSTRY
Consumer Staples Distribution
product availability and increased customer visits. & Retail

The majority of respondents reported higher revenue, GICS SUB-INDUSTRY

Food Retail
footfall and average customer spend YoY for this past
quarter.

Food sales outpaced clothing, boosted by strategic pricing

and promotion tactics, with alcoholic beverages, particularly
wines, leading the surge.

Over 63% of store managers reported an average rise in

online sales of 5.0% YoY.

Around 87.5% of store managers reported rising prices YoY,

attributed to the cost of living crisis, while promotional
activities remained stable, reflecting effective management.
 Our channel checks indicate an optimistic outlook for the
next 6 months, driven by returning customers and a wide
product range, especially ahead of the Christmas season.

M&S Estimates Woozle Consensus

(1H-23) Estimates Estimates

Total LFL 10.5% 8.5%

Revenue - UK

Total LFL 10.5% 9.4%

Revenue - Group

Total Revenue - 5.0% 4.0%

Online

Pricing Growth 10% -

Source: Visible Alpha; Bloomberg; Woozle Estimates

LFL Sales Performance

This quarter’s channel checks with M&S store managers highlighted
strong like-for-like sales performance YoY, with reports of LFL sales
growth of 10.5% YoY, ahead of consensus estimates for the Group
of 9.4%. The revenue surge is primarily driven by consistent
product availability and a significant upturn in customer visits. The
increase in foot traffic specifically was attributed to the settling of
Covid-19 impacts and revitalisation, and many reports of M&S
stores expanding their food halls. This strategic move has not only
offered a wider product selection but has also positively influenced
customer footfall, contributing to the overall revenue growth. In
regards to the revenue distribution between M&S’ food and
clothing activities, store managers reported higher growth coming
from the Food rather than the Clothing segment, driven mainly by a
food brand based on quality, and strategic pricing and promotion
tactics across food and beverages.

M&S Behind In-Line Ahead of

Estimates Consensus with Consensus
Consensus

Total UK 5.0% 15.0% 80.0%

Revenue
Growth

Average Customer Spend

Average customer spending at M&S has experienced a noteworthy
uptick, partially attributed to strategic price locking on several
items. It's worth noting that M&S maintains competitive pricing in
alignment with industry standards, encouraging frequent visits and
higher spending. Supporting this, and addressed in more detail
below, is how increased promotions have expanded average
basket sizes and frequency of shopping, which respondents noted,
has led to customers spending slightly more per visit compared to
the prior year, indicating a rise in AOVs and further potential for
above-expected sales growth over the next 6 months.

M&S Falling Stable Rising

Revenue vs. Targets 5.0% 65.0% 30.0%

Average Customer 5.0% 27.5% 67.5%

Spend

UK Stores Footfall 7.5% 20.0% 72.5%

Growth
Online Sales Performance
Respondents also noted a significant uptick in YoY e-commerce
sales, with over 63% of store managers that we interviewed
reporting an increase in online sales YoY, and an average rise in
online sales of 5.0%, ahead of consensus estimates of 3.95%. Store
managers reported that M&S has strategically increased its online
order slots, driving a surge in online sales. This proactive measure
to meet growing demand has resulted in surpassing set targets,
indicating robust performance. The substantial growth in online
sales from the previous year has been instrumental in achieving
preset objectives. Despite this, it's noteworthy that a majority of
customers still prefer the in-store shopping experience.

Food vs. Clothing Trends

In regards to M&S segments, store managers reported higher
growth coming from Food rather than the Clothing segment. This
has been driven mostly by strategic pricing and promotion tactics
across food and beverages, but over 85% of respondents shared
that quality continues to be a key driver in the sales of food for
their stores. Moreover, sales of alcoholic beverages have seen a
noticeable increase this quarter, driven by strategic pricing tactics,
with wines, in particular, performing well when offered at
promotional prices. Mixer cans and white wines stand out as the
best-performing categories within this segment.

Within clothing, store managers reported that menswear and

activewear were the top performers this past quarter, consistently
exceeding targets. However, some store managers shared that
children’s collections have been facing some challenges and that
beauty products show room for improvement. The worst category
this quarter was reported to be ladies' nightwear/sleepwear, which
store managers stated is facing challenges due to reduced stock
availability from shipping delays, expected to normalize in October.

Pricing Trends
Around 87.5% of M&S store managers reported rising prices YoY
during this quarter. The remaining 12.5% reported overall stable
pricing levels, with only a slight increase in select products,
attributed to the general cost of living crisis. This quarter, prices
have experienced an approximate 10% YoY increase according to
our channel checks, reflecting the broader inflationary impact on
item costs. This strategic approach ensures that M&S remains
aligned with market dynamics while continuing to provide value to
its customers. More specifically, store managers shared that M&S
prices have seen a modest uptick, particularly noticeable in meal
deals and dine-in offers.

M&S Slowing Stable Growing

Pricing Increases 0.0% 12.5% 87.5%

Promotional Trends
In regards to promotions, our channel checks highlighted that the
majority of respondents, over 45% reported stable promotional
activities during the quarter, with only 30% of store managers
reporting higher promotions and discounting across their stores.
This shift is in line with the broader trend of lower promotional and
discounting activity YoY, owing to inflationary pressures leading to
higher overall prices, even after applying promotional offers and
discounts. Nevertheless, store managers did share that certain
items like cushions, home fragrances, and men's suits remain
consistent YoY. As for the Food segment, soft drink sales have seen
a slight dip this quarter, especially in comparison to the same
period last year, due to this lack of promotional activity.

Rising Store Costs

Furthermore, M&S has proactively managed store costs through
various measures. Over two-thirds of all store managers we
interviewed stated that store costs have been rising YoY, and
around 33% of respondents highlighted staff reduction as a key
strategy for cost savings. That compares to less than 5% of
respondents who reported that they are actively hiring.

Others emphasised savings in energy and infrastructure costs as

part of their overall cost management strategy, driven by rising
electricity expenses. One store manager mentioned that engineers
have been engaged to address lighting and boiler issues, and the
team has received education on cost-saving measures. They added
that one month ago, they installed energy transistors to regulate
voltage output, a step taken to counter rising electricity expenses.
Simple yet effective actions, such as optimising lighting and energy
usage, have also been implemented, aligning with budgetary
objectives.

Forward Outlook
The outlook for M&S for the next six months is marked by
optimism according to our channel checks. Returning customers
and consistent week-on-week sales growth, combined with
commendable service quality and an extensive product range,
contribute to this positive sentiment. Further, store managers
anticipate continued growth in sales, driven by upcoming events
such as the Christmas season. One store manager even shared that
they expect approximately £2 million in sales growth over the next
six months for their store, representing a substantial increase
compared to the same period last year. This optimism positions
M&S for continued success in the coming months.

M&S Negative Neutral Positive

6 Months 0.0% 17.5% 82.5%

Expectations

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