M&S Surges Past Estimates: Food Dominance Fuels Growth Offensive

Gold prices surged to record highs in 2025.

The food division remains Marks & Spencer's growth engine, driving both top-line momentum and margin expansion in a competitive landscape. M&S's global revenue surged to £13.8bn in the year ending March 2025, with the food segment powering nearly two-thirds of the £800m annual revenue increase. Food sales grew 13.0% year-on-year, outpacing clothing and home's 5.3% advance and delivering an operating margin of 4.8%-a testament to pricing power and customer loyalty in groceries. The CEO noted market share in food rose to 3.7% from 3.55% over the 52 weeks to March 2024, reflecting stronger penetration despite sector-wide challenges.

Structural advantages differentiate the food business from clothing and home. While clothing margins sit at 10.3%, food's 4.8% operating margin expands despite lower absolute returns, suggesting scalable cost efficiencies. Structural cost savings of £180m were achieved in 2023/24, with the target now raised to £500m-a move that could amplify food segment profitability as volume growth persists. The division's cash flow generation further underscores its leverage: free cash flow from operations increased significantly to £413.7m, enabling reinvestment into supply chain resilience and private-label innovation.

M&S's food dominance aligns with its broader reputation. Voted the UK's most popular department and home store in 2024, the retailer's grocery expertise anchors customer trust, particularly in value-driven formats like Foodhall. With both businesses delivering 12 consecutive quarters of growth, the food segment's disproportionate revenue contribution and margin trajectory suggest continued outperformance-especially if structural savings materialize. While clothing faces margin compression from shifting style preferences, food's steady demand elasticity and operational scaling potential position it as the cornerstone of M&S's long-term value creation.

Marks & Spencer's latest financial results underscore a company executing a disciplined turnaround, translating operational momentum into tangible shareholder value. The 22.2% surge in profit before tax and adjusting items to £875.5m, despite statutory PBT compression, highlights the effectiveness of its restructuring. Core segments drove this resilience: Food sales jumped 8.7% to £9.0bn, generating robust margin expansion to 5.4%, while Fashion, Home & Beauty grew sales 3.5% to £4.2bn with adjusted operating margins hitting 11.2%. Critically, these growth engines coexisted with significant cost discipline, evidenced by £120m of structural savings achieved in 2024/25-a figure management targets to more than double to over £500m by 2027/28. This combination of revenue growth and margin enhancement, particularly in the high-margin Food division, directly fueled the impressive £443.3m free cash flow from operations, providing substantial financial flexibility.

Management's confidence in this trajectory is evident in its capital allocation decisions. The planned £600m-£650m net investment for 2025/26, notably higher than pre-turnaround levels, isn't merely maintenance but a deliberate bet on accelerating market share capture. This spend targets both top-line growth and resilience, underpinning the vision for sustained profitability. While the £248.5m non-cash ORL impairment and the estimated £300m cyber incident impact on 2025/26 operating profit are significant headwinds, their nature is important: the impairment reflects past strategic shifts, while the cyber cost is largely mitigated by insurance and cost actions, indicating manageable tail risks rather than structural damage. The real story is the underlying operational momentum-sales growth across core divisions, expanding margins, and strong cash generation-providing the runway to absorb these costs and invest for the future.

This performance validates the "Growth Offensive" stance, particularly the focus on penetration rate and learning curve dynamics. The strong Food sales growth, coupled with margin expansion, suggests M&S is successfully regaining market share and customer loyalty in a key category. The sustained profitability in Fashion, Home & Beauty, despite International weakness, demonstrates diversified growth potential. Management's explicit £500m+ cost saving ambition by 2027/28 represents a clear milestone. Achieving this will further boost margins and free cash flow, strengthening the balance sheet and funding future growth initiatives. For investors, this translates to a compelling long-term thesis: Marks & Spencer is moving beyond stabilization into a phase of reinvested growth, with its core businesses showing increasing market penetration and operational proficiency. The current valuation must increasingly reflect this improved trajectory and the potential for sustained, cash-flow positive expansion.

Despite a challenging international backdrop, Marks & Spencer's domestic core continues to demonstrate compelling growth levers. The Group's food business delivered a robust 8.7% sales increase to £9.0bn, a key indicator of penetration rate rising within the UK grocery market, generating £484.1m in adjusted operating profit. This momentum extended to fashion, home, and beauty, which saw sales climb 3.5% to £4.2bn, with adjusted operating profit reaching £475.3m at an impressive 11.2% margin. These results underscore a successful cost/performance ratio continuously improving, where volume growth translates efficiently into profitability despite broader economic pressures.

Significant structural cost reductions, achieving approximately £120m in 2024/25 and targeting cumulative savings exceeding £500m by 2027/28, further strengthen the operating model. The Group generated substantial free cash flow of £443.3m, providing a solid foundation for future investments. While the International division faced a 7.1% decline in constant currency sales, the resilience of adjusted operating profit at £46.3m (only a slight dip from £47.8m) suggests underlying franchise strength, even if growth there remains subdued. The reported statutory PBT decrease was largely attributable to a £248.5m non-cash impairment related to the ORL investment and the significant estimated £300m impact of the recent cyber incident on 2025/26 operating profit. However, management's focus on cost management, insurance recovery, and trading actions indicates these are largely mitigated headwinds rather than permanent structural issues.

Looking ahead, the commitment to capital investment of £600m-£650m for 2025/26 signals confidence in fueling growth and enhancing resilience. The combination of strong domestic divisional performance, demonstrable cost control leading to healthy margins and cash generation, and a clear path to significant future savings positions M&S favorably for sustained growth. The cyber incident and international weakness are acknowledged risks, but the underlying domestic momentum and operational improvements suggest the long-term growth trajectory remains intact, warranting an increased weight in portfolios focused on resilient consumer staples and discretionary players with proven execution capabilities.