Marks & Spencer (LSE:MKS) is a well-known household brand. It’s been around since 1884, and sells a wide variety of products ranging from food to clothing and furniture. But the Marks & Spencer share price has been on a downward trend since late 2015. This saw the company slip out of the FTSE 100 index in 2019, which was a big blow from a reputational point of view. But I see promising signs starting to appear that are making me consider buying the stock now.
Food
There are two main elements on which I’m pinning the turnaround potential for the Marks & Spencer share price. The first one is food. UK Food sales for the 2019/20 full year were up 2.1%, with like-for-like growth of 1.9%. Although this might not sound like an incredible growth figure, it is a standout considering that group profit before tax was down 20.1%.
Going forward, I think that focusing on the food arm could be a source of long-term growth for the company. To this end, the partnership with Ocado will really help. The deal was signed in 2019, but will take its time to really get going. The access to Ocado’s delivery and distribution network is a real structural benefit. Added to this are the other intangible benefits that Marks & Spencer are getting from ideas and synergies that naturally occur with a partnership.
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The risk to my view on this element is that food sales alone might not be enough to move the Marks & Spencer share price higher. They did account for around 60% of 2019/20 revenue, but that leaves 40% in other areas. If these underperform as they have done, it could make growth in food slightly redundant.
Online sales
The second part of the business that I think could help boost the Marks & Spencer share price this year is growth in online sales. In March, the business announced it was launching new websites, to target international consumers in 46 new markets.
I think this is a smart move, especially considering the latest trading update that covered the six months to the end of September 2020. Online sales were up 75% during this period. Given the issues that the company has been facing, along with reduced headcount, online growth makes sense. It’s a low-cost way of getting access to international markets, particularly when trying to stem its losses in the clothing department.
The risk here is that the boost in online sales may be overhyped due to Covid-19. This may taper off in coming months as lockdowns are eased.
But I think the Marks & Spencer share price could rise as both areas start to perform. Over the past 12 months, the share price is up 41%. It’s still way off levels that saw it trade in the FTSE 100 a few years back. Yet I think there’s scope for the share price to move considerably higher this year, so I’d buy the stock now.
