Can M&S outrun its cyber woes? FY25 results show strong retail muscle

Why Is M&S Reporting Its Best Underlying Profit in Over 15 Years?

Marks and Spencer Group plc delivered a 22.2% surge in profit before tax and adjusting items to £875.5 million for the 52 weeks ending 29 March 2025, its strongest adjusted result in over a decade. The growth was underpinned by robust contributions from both Food and Fashion, Home & Beauty, complemented by consistent cost reduction, improved store productivity, and resilient customer demand.

Revenue rose 6.1% year-on-year to £13.91 billion, while adjusted earnings per share climbed 29.7% to 31.9p. Despite this underlying strength, statutory profit before tax declined 23.9% to £511.8 million due to a one-time, non-cash impairment of £248.5 million in its investment in Ocado Retail.

From an institutional sentiment perspective, the underlying metrics outperformed consensus expectations, reinforcing the effectiveness of M&S’s transformation plan and positioning the stock as a value-driven recovery play in the UK consumer discretionary sector.

How Has the Cyberattack Shaped M&S’s FY26 Outlook?

Marks and Spencer confirmed that a sophisticated cyber incident affected operations early in FY26. The attack disrupted online operations for Fashion, Home & Beauty and introduced temporary inefficiencies in the Food supply chain due to fallback manual processes. As a result, the company currently estimates an unmitigated hit of approximately £300 million to FY26 operating profit.

Executives emphasised that the response was swift and cohesive, crediting internal teams and partners for stabilising systems. Management is leveraging the crisis to accelerate existing IT infrastructure upgrades—rephasing projects originally mapped out at the 2022 Capital Markets Day. Insurance recoveries and operating cost controls are expected to partly offset the gross impact.

Sentiment around this disruption remains neutral to moderately positive. Analysts noted the market’s lack of overreaction, a sign of confidence in M&S’s recovery playbook and transparency. Some institutional buyers appear to be interpreting the event as a short-term operational bump, rather than a structural weakness.

What’s Driving Strength in the Food Business?

Food sales climbed 8.7% to £9.02 billion, with like-for-like growth of 8.6% and volume-led expansion of 6.7%. The adjusted operating margin rose to 5.4% from 4.7% a year earlier, as sustained growth in larger basket purchases and cost efficiencies offset inflationary headwinds.

M&S reported improved price perception on core items such as salmon and potatoes, driven by its “Dropped and Locked” pricing strategy. More than 1,400 new SKUs were introduced during the year, fueling a rise in visit frequency and household penetration.

Retail investors and sector watchers have begun drawing comparisons between M&S Food and premium grocery chains like Waitrose, albeit with a more efficient cost structure. Basket values grew, with a 13% increase in larger “weekly shop” patterns suggesting customer loyalty is solidifying.

Nine new Food stores and two extensions are planned in FY26, building on success in Chancery Lane and Fosse Park, where sales exceeded initial forecasts by 20–35%.

Is the Fashion, Home & Beauty Segment Becoming a Style Leader?

Fashion, Home & Beauty (FHB) sales rose 3.5% to £4.24 billion, with like-for-like sales up 4.4% and margin expansion to 11.2% (from 10.7%). The Autograph line stood out with a 47% surge, while casual and kidswear segments also recorded market share gains despite sector-wide softness.

Men’s Autograph revenue reached £200 million—quadrupling in three years. Enhanced in-store formats and seasonal marketing campaigns have reshaped style perceptions, with M&S now ranked second for style from sixth in 2022.

Online represented 34% of FHB sales. Partner brand sales online jumped 42% and passed the £200 million threshold. Recent additions such as Tommy Hilfiger and Hush strengthened its omnichannel play, even as online margin fell slightly to 7.5% amid logistics investments.

M&S opened two new Full Line stores in Dundee and Washington Galleries. Both traded well above plan. A fashion-only trial store in Battersea attracted high footfall and will inform the 2025/26 opening of new flagship locations in Bath and Bristol Cabot Circus.

John Lyttle‘s leadership in FHB supply chain transformation is expected to push M&S towards more agile merchandising and better gross margin management.

How Are M&S’s Strategic Investments Reshaping Its Growth Trajectory?

M&S committed £578 million in FY25 capital expenditure before disposals—a 46% YoY increase—prioritising logistics, store renewal, and digital transformation. Nearly £105 million was deployed in Digital & Technology alone. For FY26, total planned capex will rise further to between £600 million and £650 million.

The technology upgrade agenda is being led by Rachel Higham, who joined the Executive Committee in 2024. The cyberattack disruption has accelerated planned IT overhauls in supply chain systems, store tech, and infrastructure simplification.

The Gist logistics acquisition delivered £60 million in profit contribution and is enabling logistics scalability, including the buildout of a multi-temperature depot in Bristol. The broader goal is to move toward a fully integrated omnichannel experience supported by resilient, modernised back-end systems.

The updated online planning platform for FHB will soon link buying, merchandising, and fulfilment systems to deliver enhanced customer personalisation and more efficient replenishment cycles.

What’s the Future for Ocado Retail in M&S’s Portfolio?

Ocado Retail Limited reported 15.5% revenue growth to £2.8 billion with rising order frequency and active user metrics. M&S’s share of adjusted losses narrowed to £28.7 million from £37.3 million, supported by improved delivery execution and value promotions like the “Ocado Price Promise.”

In FY26, Ocado Retail will be fully consolidated under M&S’s group reporting framework. While this introduces earnings volatility risk, it also offers M&S greater operational oversight and long-term synergy control.

The impaired value of the joint venture triggered a £248.5 million non-cash write-down. However, sell-side analysts view this move as prudent housekeeping, enabling clearer optics ahead of full consolidation.

What Is the Institutional View on Capital Return and Financial Strength?

With adjusted return on capital employed at 16.4% and net funds (excl. leases) improving to £437.8 million, M&S has gained investor trust around balance sheet discipline. Net debt was cut by £376 million to £1.79 billion. Cash flow from operations hit £443.3 million and supported a 20% dividend hike, to 3.6p per share.

Major fund houses have noted that M&S is now in its best financial shape in nearly three decades, creating flexibility for further buybacks, higher dividends, or tuck-in acquisitions should opportunities arise.

How Does M&S Compare With UK Retail Peers?

In relative terms, M&S’s food volume growth and fashion margin resilience have outperformed mid-tier rivals such as Sainsbury’s and Next in recent quarters. While Next continues to excel on margin, M&S is closing the perception gap through branding, category depth, and store experience.

In fashion, M&S’s return to relevance is being benchmarked against ASOS and John Lewis for omnichannel delivery and product premiumisation. The store rotation strategy also gives it an edge over peers still struggling with legacy leases and underperforming high-street assets.

M&S’s share price has outperformed the FTSE 350 Retail Index over the past 12 months, aided by institutional net inflows and broker upgrades post-H1 2025.

What Can Investors Expect from M&S in the Coming Quarters?

Looking ahead, investors are watching three critical levers: (1) full restoration of online operations post-cyber incident, (2) consolidation of Ocado Retail and its impact on group profitability, and (3) the continued shift to higher-margin, tech-enabled retailing.

The guidance remains consistent with the long-term “Reshaping for Growth” plan outlined in 2022. The next milestones include executing planned flagship store launches, accelerating automation in logistics, and improving ROI on tech investments.

Some analysts have introduced M&S to their buy lists, targeting a re-rating if margin expansion continues in FY26 and M&S successfully navigates post-incident recovery.