Stuart Machin will find it harder to retain retailer’s new rhythm

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When Marks and Spencer first promised shareholders a revival 20 years ago, bands including Busted were in the UK music charts. Chief executive Stuart Machin must hope so today’s number one, Taylor Swift’s “Is it over now?” does not predict how his efforts will pan out. Maintaining the momentum for change will get harder.

The 139-year-old British retailer on Wednesday restored its dividend as it posted forecast-busting first half sales and profits. Like-for-like sales in its food business rose 12 per cent after it plowed £30mn into lowering prices on 200 products.

But there were also improvements in M&S’s troublesome clothing business, long a focus to revitalize the group. Here like-for-like sales rose 5.5 per cent. Crucially, a push to sell a greater proportion of its stock at full price helped lift margins to 12.1 per cent from 9.8 per cent last year.

Machin had last year set himself five-year goals of a 10 per cent-plus margin in clothing and more than 4 per cent in the food business. He has already surpassed both. Shares rose 9 per cent on the day. The shares have nearly doubled this year making it the FTSE 100’s second-best performer behind Rolls-Royce.

But keeping this band running requires more cash. So, clothing sales are fickle, and even more so in a slowing economy. Meanwhile, M&S’s listed food rivals Tesco and Sainsbury’s throw off huge amounts of cash from their retail operations. M&S trades on a forward price/earnings ratio of nearly 12 times, roughly in line with Sainsbury’s versus 11 times for Tesco.

M&S’s own free cash flow improved significantly in the first half to £27.7mn from a negative £116.8mn a year ago. Full year it should surpass £250mn, according to S&P Capital IQ. But compare that with a forecast of £625.18mn for Sainsbury’s, which also sells clothes and has a general merchandise arm.

Whether M&S can not only stay on track but also keep the music going for investors is Machin’s true test.