The Marks & Spencer (LSE: MKS) share price jumped on Friday by almost 15%. That’s a pretty steep one-day rise for a mid-cap stock. It was up again by nearly another 2% yesterday.
So what’s happening? Well, the retailer released a trading update last week. And judging by the share price performance, the market was pleased. So should I buy the shares now? I’m not buying yet, but the stock is now on my investment radar. I think the news release is worth a closer look.
Performance
The FTSE 250 company started the year with an uncertain trading outlook. Covid-19 restrictions meant that most of its stores were closed. Of course, this was going to play havoc with sales. But since then, things appear to be promising.
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Overall revenue for the 19 weeks to 14 August increased by 29.1% compared to last year. But more importantly, this improved by 4.4% compared to its pre-pandemic levels. While this rise may seem small, it shows that consumers are still buying its products and that there’s pent-up demand.
Its stores suffered during the pandemic but it has emerged from the coronavirus crisis with higher sales. Is there now light at the end of the tunnel? Well, it’s still early days for the retailer.
Food
I’m not surprised that the firm’s food offering saved the day once again. Revenue from this division increased 10.8% on last year and 9.6% on 2019. The retailer has seen strong performance from its core categories and retail park locations from this business. Hospitality and franchise are slowly improving given the low footfall and slow return to normal work patterns.
Outlook
What really got the market excited was the company’s forward guidance. It said that if there aren’t any further Covid-19 disruptions, it expects adjusted pre-tax profit for the year to beat the upper end of previous guidance of £300m-£350m.
It’s encouraging that it has increased its profitability forecasts and a sign of perhaps good things to come. So has the retailer turned a corner? I don’t think it has just yet.
Risks
As I said, it’s still early days. And there’s no guarantee that this strong performance will carry on for the rest of its financial year. This could be a short-lived pick-up in demand, especially after its stores were closed during the pandemic. If this is the case, then it may hit the Marks & Spencer share price.
Even the company has said that “there remains substantial uncertainty as to the continued strength of consumer demand, as well as disruption in both supply chains and consequent pressures on costs and margin”.
Should I buy?
While the market has viewed the trading statement positively, I’m taking this with a pinch of salt. Competition is fierce and even with improving online sales, I’m not convinced whether this good performance will be sustainable for the retailer. Hence, I’ve placed the stock on my watch list. I’m erring on the side of caution and am not ready to dip my toe in just yet.
