Marks & Spencer (LON:MKS) appears to be emerging from a challenging period with renewed confidence, according to the latest research note from Shore Capital. Following a year marked by disruption, the British retail stalwart is now described as being firmly “back in control of its own destiny”, with improving trading momentum across key divisions.
The note, authored by Research Analyst Darren Shirley, highlights that despite the well-documented operational setbacks during the year, the group is finishing its financial year in a stronger position than many might have expected.
A resilient performance despite disruption
Marks & Spencer is approaching the end of FY26, a period that the company will likely be relieved to put behind it. External challenges, including a cyber incident and broader macroeconomic pressures, weighed on performance. However, Shore Capital has maintained its forecasts, expecting a pre-tax profit of £655 million and earnings per share of 23.4p for the year.
Encouragingly, the outlook improves significantly beyond this period. Forecasts for FY27 suggest a return to growth, with pre-tax profit expected to rise to £960 million and EPS to 33.9p.
Darren Shirley notes:
“we believe M&S is ending FY26F in good shape, with Food back to a level of profitable and sustained market outperformance and with Fashion, Home & Beauty (FHB) surplus seasonal inventory sold through after the much-discussed cyber incident.”
Food division leading the recovery
A standout feature of the recovery story is the strength of the Food division. After a brief dip following operational disruption, sales and volumes rebounded quickly.
Recent industry data points to continued growth, with Shore Capital highlighting strong momentum into the fourth quarter. This reflects both improved availability and sustained customer demand, reinforcing the division’s position as a core driver of group performance.
Progress in Fashion, Home & Beauty
The Fashion, Home & Beauty segment has also shown signs of stabilisation. A significant focus during the fourth quarter has been clearing excess seasonal stock, following disruption earlier in the year.
While this required heavier promotional activity than usual, management has been encouraged by customer engagement with new ranges and the return of full-price sales in recent weeks.
Key financial and operational highlights
- FY26 forecast pre-tax profit of £655 million, EPS of 23.4p
- FY27 forecast pre-tax profit of £960 million, EPS of 33.9p
- Food sales growth of +6.5% over a recent 12-week period
- Continued investment in infrastructure, including a new automated distribution centre
- Expected capital expenditure of around £725 million in FY27
- Stronger contribution from new Food space growth, targeted at around 2% in FY27
Valuation gap presents opportunity
Despite the improving outlook, Shore Capital argues that Marks & Spencer’s valuation does not yet reflect its recovery potential. The shares are currently trading on a forecast FY27 price-to-earnings ratio of around 10.0x, which compares favourably with UK peers in both apparel and grocery.
This relative discount is seen as an opportunity for investors, particularly if the company can deliver on its medium-term growth ambitions.
Strategic outlook and long-term potential
Looking ahead, FY27 is described as a critical year for the business. Investment in new store formats, supply chain infrastructure and digital capabilities is expected to support further growth.
There is also longer-term potential tied to ambitious targets, including doubling the Food business and significantly expanding online sales in Fashion, Home & Beauty. If achieved, these initiatives could drive meaningful earnings growth and stronger cash generation over time.
Final Thoughts
Marks & Spencer appears to be turning a corner after a difficult year, with improving trading across both Food and Fashion divisions. Shore Capital’s analysis suggests that while challenges remain, the company is entering its next financial year with renewed stability, clearer strategic direction and the potential for meaningful earnings recovery.
