Analyst firm Bernstein has reaffirmed its bullish stance on UK retailer Marks & Spencer (M&S), arguing that the company can keep expanding its food business without resorting to store-wide discounting. The broker maintained its “outperform” rating, a signal that it expects the stock to do better than the broader market or sector over the coming period.
At the heart of Bernstein’s thesis is a belief that M&S has become more surgical with its pricing strategy. Instead of slashing prices across the board to compete with discounters like Aldi and Lidl, the company is focusing its price cuts on everyday “basket basics”—items such as bakery, dairy, and meat—where shoppers are most price-sensitive. By keeping these staples close to mainstream competitors, M&S hopes to remain a credible destination for a full weekly grocery shop.
But in categories where its quality is a stronger draw—like prepared meals and convenience food—Bernstein thinks M&S can charge a premium without losing customers. That approach, the broker argues, should lift the average profit earned on each item sold, helping to recover food margins to 5.4% by fiscal 2027. For context, food retail margins are typically thin, often in the low single digits, so a move to 5.4% would represent a meaningful improvement.
Why margins matter
For investors, margins are a key measure of how efficiently a company turns sales into profit. In grocery, where competition is fierce and customers can easily switch stores, margins are under constant pressure. Retailers that can raise prices without losing market share—or that can cut costs without hurting the shopping experience—tend to see their margins expand, which often translates into higher earnings and, potentially, a higher share price.
M&S has been on a turnaround journey for several years, focusing on improving its food offering and streamlining its clothing and home business. The company has also invested in its online grocery delivery and its loyalty programme, which helps it understand customer preferences and tailor promotions. These efforts have helped M&S regain some relevance with shoppers who had drifted to cheaper rivals.
Bernstein’s view is that M&S’s food business can continue to grow even as the UK economy faces cost-of-living pressures. The broker’s confidence appears to rest on the idea that shoppers will trade down on basics but still treat themselves to higher-quality prepared meals and other premium items. That “treat yourself” behaviour has been a notable trend in UK grocery, with many consumers cutting back on big-ticket purchases but still willing to pay for small indulgences.
What it means for investors
For everyday investors, the key takeaway is that Bernstein sees a path for M&S to improve profitability without engaging in a price war. If the company can execute on this strategy, it could lead to stronger earnings growth and a more favourable view from the market. However, it’s important to remember that analyst ratings are just one opinion, and they don’t guarantee future performance.
Investors should also consider the broader retail environment. UK grocers have been locked in a competitive battle for years, with discounters gaining significant market share. While M&S has held its own, the pressure is unlikely to disappear. Any slip in execution—such as failing to keep basics competitive or overpricing premium items—could undermine the margin recovery Bernstein envisions.
Another factor to watch is how M&S’s food margins compare with those of its peers. The company has historically had higher margins than many mainstream grocers because of its premium positioning, but it has also faced criticism for being more expensive. Bernstein’s forecast suggests that gap could widen, which would be a positive sign for profitability.
For those considering an investment in M&S, it’s worth noting that the stock has been a favourite among some investors looking for a UK retail recovery story. The company’s turnaround has been gradual, and its shares have shown volatility. As with any stock, it’s wise to do your own research and consider how it fits into your overall portfolio.
In the near term, investors will likely watch for updates on M&S’s trading performance, especially around key shopping periods like Christmas, when food sales typically spike. Any signs that the company is gaining or losing market share in food will be closely scrutinised. Bernstein’s report adds to the chorus of analysts who see potential in M&S’s strategy, but the proof will be in the numbers.
For a broader look at how retailers are navigating the balance between growth and margins, see our coverage of Woolworths lifting profit and dividend and Australian industry margins under pressure. And for another Bernstein take on a European consumer giant, check out Bernstein on Richemont’s jewelry strength.
