M&S Christmas Trading Update

Can the weather offset market pessimism and help M&S recover from the losses suffered last year?

Continue to rebound or another slide ahead?

Shares in M&S slid for most of last year, bottoming out in October as the cost of living crisis hit a peak. Since then, shares have recovered and appear to have been buoyed by better results shown in the H1 report and the suggestion that the new Chief Executive is righting the ship. The report did acknowledge that trading conditions will get more challenging in the latter half of the current calendar year (which is the first half of M&S's fiscal year 2024), though in the short term, performance is expected to remain in line with the prior year.

One of the worries, however, is that despite an increase in sales, free cash flow has turned negative. This contributes to keeping dividends on hold until the end of next year at least. Higher costs have put margin pressure on the company, which is seen as targeting a more affluent clientele and being better able to absorb costs being passed on to consumers.

Christmas performance

This last quarter is when the company does best, aided by sales around the holidays. In its most recent report, Chief Executive Machin said that trading was in line with the prior year, which was substantially better than expected. Retailers that have reported Christmas sales so far have shown good sales, which is hoped to translate into a bumper result for M&S as well.

The bout of cold weather in early December is also hoped to have increased sales in clothing, which has a higher margin than the grocery section. Analysts are split, suggesting lower festive spending, but grocery sales will show more resilience.

M&S above sideways channel

The stock has recently broken past the upper range of the rectangle pattern at 128.00 and speared towards 140.00. Breaking past the local top could see the share price increase to last July's peak at 148.00 unless bears defend the short-term resistance of 145.00. Typically, breakouts reach at least the measured move leg, which uses the range height added on the breakout point and lies precisely at 140.00. That is shy of the current price of 139.00. Failing to maintain the bias upwardly will likely see the short-term support of 133.00 giving in to potential pressure. 128.00, and the lower range of the rectangle pattern will come into the spotlight if prices reverse or pull back.

Key takeaways

M&Ss shares have been sliding for most of last year but have recently recovered due to better H1 results and the new CEO. Analysts are still split on whether M&S will have a good Christmas performance. Some believe that lower festive spending will offset any gains from grocery sales. The stock has recently broken past the upper range of the rectangle pattern at 128.00 and speared towards 140.00 despite the free cash flow turning negative.