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CFDs are complex instruments. 72% of retail client accounts lose money when trading CFDs, with this investment provider. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.

Marks and Spencer shares: The view prior to its 2020/21 FY results

Full-year results from 2020/21 are expected from Marks & Spencer on Wednesday, 26 May. The iconic British retailer made a pre-tax profit of £403m in 2019/20. How will 2020/21’s likely decline affect Marks & Spencer shares?

chart Source: Bloomberg

  • £43m pre-tax profit forecast for 2020/21
  • 34% year-on-year fall in clothing and homeware sales
  • CEO Steve Rowe pleased to have prevailed in “fixing the basics” for M&S long-term
  • Ready to trade the Marks & Spencer share price? Open an account today

Will anticipated year-on-year profit decline hit Marks & Spencer shares hard?

Marks & Spencer is set to report pre-tax profits of just £43m for its 2020/21 trading year. The pandemic-hit year is expected to result in a 90% year-on-year (YoY) decline in profits for one of the UK’s oldest names in retail.

Marks & Spencer posted pre-tax profits of £403m in the previous year. However, the writing was on the wall late last year when the company posted its first H1 loss since being a publicly listed company.

The second half of 2020/21 saw the easing of the UK’s third nationwide lockdown, which has helped not only to bring clarity to the future of M&S stores, but confidence back into the Marks & Spencer share price too. Year-to-date growth of more than 17% from 131.40p to 154.65p as of Monday, 24 May suggests that investors may have already priced in the group’s turbulent 2020/21 trading figures.

What has affected Marks & Spencer most during the Covid-19 pandemic?

All leading retailers across the UK have been hit hard by the Covid-19 crisis. Next saw its full-year profits plunge 53% YoY, while Primark also saw annual profits hit by 90% YoY, which affected the share price of Associated British Foods hard.

Marks & Spencer is clearly no different in this regard, with YoY clothing and homeware sales driving the downturn with forecasted 34% declines as a consequence of the multiple Covid-19 lockdowns. The group’s non-food profits have been only marginally offset by a 1.2% YoY improvement in food sales.

Unlike some retailers, Marks & Spencer also opted to retain its multi-million-pound business rates relief from the worst of the pandemic.

Is CEO Steve Rowe the man to lead M&S firmly into the 21st century?

It’s a far cry from 1998 when Marks & Spencer became the UK’s first retailer to post full-year pre-tax profits of more than £1bn. The group replicated this achievement in 2008 before the global recession.

Chairman Archie Norman and CEO Steve Rowe are the men at the helm, tasked with steering M&S firmly into the 21st century. Norman described 2020/21 as a ‘lost year’ for the firm, however, the duo quickly opted to condense three years of changes into a single year to address its operational weaknesses.

This included more than 7,000 job cuts, the closing of poor-performing high-street stores, and a long-overdue focus on online food shopping. Its new partnership with Ocado is already starting to bear fruit. Analysts at Berenberg believe M&S’ stake in Ocado alone is now worth 0.60p a share, which is not reflected in the Marks & Spencer share price.

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