Marks and Spencer valuation discount persists despite stronger food growth and fashion recovery signs

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Marks and Spencer valuation discount

Highlights

M&S food division has grown roughly 10% annually since 2022, gaining 1 percentage point of market share per Nielsen IQ.
M&S will invest £740 million in 2024—almost four times 2022 capex—focusing on logistics upgrades and new store openings to boost clothing profitability.
M&S shares trade at about 11 times forward earnings, a 20% discount to Next, despite higher expected growth over the next two years.

Turnaround gains in food and clothing

As reported by the Financial Times, investors remain cautious on Marks and Spencer despite signs that its latest turnaround is gaining traction across its core businesses.

The market's hesitation reflects the retailer's long history of failed revival efforts, along with last year's cyber attack, which disrupted clothing sales and cut about a quarter from pre-tax profit. The group also faces wider pressure from debate over proposals to cap food prices at supermarkets in the UK.

M&S food now looks materially stronger than in the past. The division generates most of group revenue and half of operating profit, and it has grown by roughly 10% a year since 2022, outpacing the wider UK grocery market and adding about 1 percentage point of market share, according to Nielsen IQ.

The strategy has involved accepting lower gross margins on food to offer sharper prices and drive volumes. Analysts expect that approach to support nearly 6% annual sales growth in the UK food division through 2030, based on Visible Alpha consensus.

Clothing remains the tougher business to fix, and sales were flat even in the second half, when the M&S website was operating again. Still, consumer sentiment is showing improvement, with YouGov polls placing M&S first among peers in the UK for value and style.

Investment plans and market implications

Profitability in fashion still trails key rival Next, with M&S's adjusted operating margin last year at about one-third of Next's level. To address that gap, the retailer plans to invest £740 million this year, nearly four times its capital expenditure in 2022, to upgrade logistics and open new stores.

That spending underlines management's effort to improve execution rather than rely only on stronger brand perception. If those operational upgrades translate into better margins and steadier clothing growth, the investment case could strengthen materially.

On current expectations, the shares appear inexpensive. M&S trades at about 11 times forward earnings, around a 20% discount to Next, even though it is expected to grow faster than its high street rival over the next two years. The gap suggests the market is still pricing in a pattern of underperformance that may no longer match the retailer's operating trajectory.

Our earlier report on TJX Companies’ latest quarterly results described how off-price retail demand stayed resilient as consumers continued to prioritize value. We noted the company beat expectations on revenue, earnings, and same-store sales, then lifted its full-year EPS outlook—signaling that discounted, branded merchandise and steady store traffic can support growth even in a cautious spending environment.

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