Marks & Spencer price target snipped as RBC cautions over clothing business

RBC Capital Markets cut its Marks & Spencer price target to 350p from 400p and trimmed FY26–27 earnings forecasts by 1–5%, citing weaker expected margins in Fashion, Home & Beauty, slightly higher interest and tax charges and a higher WACC; the broker retains a constructive view on Food, noting Kantar data showing solid value and volume growth that should support the division through Christmas. RBC warned of softer H2 gross margins in Clothing driven by a longer post‑Christmas sales period and ongoing stock clearance, plus the risk of training customers to wait for promotions, and flagged recent disruption including a cyber incident as heightening execution, systems and supply‑chain risk. The shares are rated Sector Perform as the broker considers the current valuation fair given higher‑than‑average markdown and execution risk.

Analysis

RBC Capital Markets reduced its Marks & Spencer price target to 350p from 400p and trimmed FY26–27 earnings forecasts by 1–5%, citing weaker expected margins in Fashion, Home & Beauty, slightly higher interest and tax charges, and a higher weighted average cost of capital; the broker retains a Sector Perform rating and views the current valuation as fair against higher-than-average markdown and execution risk. The broker remains constructive on the Food division, noting M&S is well positioned to benefit from trends towards premium, healthy and specialist products and more meals prepared at home, and cites recent Kantar data showing solid value and volume growth that should support the division through the Christmas period. RBC flagged specific Clothing risks: an expected softer H2 gross margin driven by a longer post-Christmas sales period and ongoing stock clearance, the risk of training customers to wait for promotions despite targeted offers and loyalty schemes, and higher execution risk following recent disruption including a cyber incident. The note implies limited near-term upside absent clearer recovery in Fashion margins or demonstrable remediation of systems and supply-chain weaknesses, making upcoming H2 margin commentary, inventory metrics and cyber-remediation updates the primary catalysts to re-rate the shares.

Key Decisions for Investors

• Adopt a neutral-to-underweight stance on M&S shares until H2 margin guidance and inventory clearance trends become clearer, given the trimmed earnings and lower price target
• Monitor Food division KPIs and Kantar volume/value data as the primary upside catalyst and consider selective exposure only if outperformance is sustained
• Require visible remediation on the cyber incident and tangible supply-chain/system improvements before increasing allocation to Clothing-exposed positions, and consider hedging short-term downside tied to promotion-driven margin erosion