Marks & Spencer (AO) | Buy | FY 2025/26 first take: difficult to read, guidance looks a bit shy

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Marks & Spencer (AO) | Buy | FY 2025/26 first take: difficult to read, guidance looks a bit shy

Marks & Spencer Buy | Target Price: 436p

International sales declined 7.2%, but adjusted operating profit increased to £39.1m as cost reductions offset weaker demand.

Management is resetting franchise terms and developing wholesale and marketplace partnerships, although Middle East

shipment disruption remains a near-term constraint.

Good surprise from Ocado Retail

Ocado Retail was consolidated for the first time in FY26. Company-reported Ocado Retail sales were £3.2bn, with adjusted

operating profit of £15.2m. We were not expecting a positive contribution. M&S products on Ocado.com grew 17.7% to over £1bn,

supporting improved profitability.

Lower than expected FCF

Free cash flow from operations fell to £131.3m (consensus GBP181m), reflecting lower operating profit, working-capital outflows,

higher capex and cyber-related cash costs.

Many one offs

Company-reported adjusting items included £131.3m of incident-related costs, while £100m of insurance proceeds was

recognised centrally in adjusted profit. The total adjusting items charge was £292.1m.

Management’s outlook is constructive but cost-conscious.

According to company guidance, profit growth is expected to resume in FY27 versus FY25, with further progress from Food

volume growth, improved Fashion, Home & Beauty availability and supply-chain capabilities. Management also flagged higher

fuel, freight, input costs, government levies and regulatory headwinds to be mitigated through buying improvements, value

reinvestment and structural cost savings. Consensus is currently expecting 8% adjusted net profit growth in 2026/27 vs 2024/25

so we read this guidance as compatible, even if management's tone looks very cautious.