MARKS & SPENCER (MKS) SHARES: 2025 OUTLOOK, KEY DRIVERS

How did Marks & Spencer shares perform in 2025?

Marks & Spencer Group plc (LSE: MKS), the iconic British retail and food giant, experienced a dynamic year in 2025, reflecting both structural changes initiated over recent years and evolving consumer trends. M&S shares demonstrated resilience, driven by strategic growth initiatives, robust food segment results, and recovering clothing and home sales. By December 2025, MKS stock had risen approximately 18% year-to-date, outperforming the FTSE 250 index, to which it currently belongs.

Analysts attributed this to a series of strategic wins. The retailer continued to benefit from its transformation programme that began in 2020, which focused on modernising stores, improving cost efficiency, and revamping digital capabilities. M&S’s partnership with Ocado also delivered steady growth through its online food delivery arm, signalling further maturity in its digital transition.

The clothing and home division, once considered a laggard, experienced a resurgence. Value-for-money merchandise, faster design-to-store cycles, and improved inventory management helped boost margins. The launch of new collections under the ‘Autograph’ and ‘Per Una’ labels were well-received, helping to elevate the brand’s fashion credibility.

Furthermore, disciplined cost control and a favourable inflation trajectory supported operating margins. Food inflation cooled over the course of the year, which improved consumer sentiment and helped drive same-store sales growth. However, M&S kept its pricing in line with competitors, sustaining volumes without compressing margins significantly.

Balance sheet quality also improved. The retailer reduced its net debt position significantly, thanks to stronger cash flows and disciplined capital expenditure. Its interim dividend was reinstated at a modest level, which bolstered investor confidence.

The M&S share price consistently tested resistance levels around 290p throughout Q3 and Q4 but closed the year near 285p — implying a potential upside moving into 2026. The company trades at a forward P/E ratio of around 11x, which is slightly above the historical average, hinting at investor optimism about continued operational progress.

In sum, 2025 marked a year of strategic follow-through and regained investor trust for M&S. Nonetheless, challenges remain, especially amid tighter retail competition and shifting consumer preferences. Investors will now be closely watching the next phase of transformation as the company further pivots toward digital commerce, operational efficiency, and sustainable growth models.

What factors drove M&S shares in 2025?

Several pivotal structural and external factors shaped Marks & Spencer’s share price trajectory over 2025, reflecting both internal operational enhancements and broader macroeconomic dynamics.

1. Digital transformation and Ocado Retail joint venture

The ongoing evolution of Marks & Spencer’s digital strategy was one of the most influential factors in its 2025 performance. Its stake in Ocado Retail, originally announced in 2019, continued delivering high-margin online food sales. Integration between Ocado’s logistics capabilities and M&S’s product assortment became more seamless, enabling wider national reach and faster delivery windows. E-commerce revenues accounted for nearly 40% of total food segment revenues—up from 32% in 2024.

Investments in warehouse automation and AI-driven demand forecasting helped M&S improve its online fulfilment profitability while reducing waste in perishables. Mobile app engagement also surged, reflecting the brand's growing appeal to younger demographics.

2. Brand repositioning and fashion segment recovery

The reinvention of its clothing line was a critical driver in 2025. M&S addressed historical issues with sizing inconsistency, ageing brand perception, and fashion timing. The relaunch of M&S’s “Capsule Wardrobe” initiative gained traction, combining practicality and style with competitive price points. This helped drive footfall across urban and suburban locations.

Key performance metrics such as full-price sell-through rates improved year-on-year, and customer retention increased through loyalty programme enhancements under ‘Sparks’. M&S also reported a higher percentage of online clothing transactions, supported by new live-stream shopping features placed within its app and website interface.

3. Inflation moderation and consumer spending trends

UK inflation slowed down significantly in 2025 after the steep surges of 2022–2023. This normalisation in price pressures boosted real disposable income, particularly for M&S’s middle-income customer base. As a result, consumers became incrementally more willing to shop for discretionary items, and M&S was well-positioned to capitalise on that shift.

4. ESG and supply chain efficiency gains

M&S leaned heavily into its Plan A sustainability strategy in 2025, targeting further carbon reductions, wider ethical sourcing initiatives, and expanded use of recycled materials in packaging and clothing lines. Supply chain rationalisation across its EU and Asia networks delivered procurement savings, while ESG compliance strengthened investor interest, especially from institutional segments with net-zero mandates.

5. Financial discipline and investor returns

The reinstatement of dividends, alongside modest share buybacks, helped signal management confidence in the business model. Free cash flow generation remained strong, and capex was prioritised toward strategic areas such as digital infrastructure and store refurbishment.

Together, these factors powered MKS shares to outperform their UK retail peers, and laid a strong operational base for 2026.

What risks and opportunities could affect M&S in 2026?

As investors look ahead to 2026, several catalysts, risks, and strategic milestones could define the performance trajectory of Marks & Spencer shares over the coming year.

1. Profit margin sustainability and input costs

While food inflation cooled in 2025, energy and labour cost pressures persist. Any significant rise in wage costs due to UK minimum wage adjustments or supply chain disruptions could compress operating margins. M&S’s ability to maintain its cost efficiencies—without diluting customer value perception—will be critical in 2026.

2. Execution on digital growth

Although M&S’s digital pivot has yielded results, the online food retail space remains highly competitive. The Ocado Retail venture must continue to innovate and scale profitably. Any underperformance—or disruptions in the fulfilment chain—could weigh on margins, particularly in perishable goods where timing is critical.

Expansion of the retailer’s ‘Live Shopping’ commerce experiences and increased sign-ups on the Sparks loyalty app will be key metrics investors may examine closely in H1 2026.

3. Macroeconomic and consumer sentiment risks

Interest rates and consumer sentiment remain wildcards. A resurgence in inflation or softening economic activity—particularly in the South East and Midlands regions where M&S has a dense footprint—could dent discretionary sales. Additionally, uncertainties related to post-Brexit trade regulations may influence sourcing costs during the next fiscal cycle.

4. Store modernisation and capital allocation

M&S is expected to announce an updated store refurbishment roadmap by mid-2026. The progress and ROI on its ‘store of the future’ pilot locations in London and Manchester will be closely scrutinised by investors. Overall capex guidance and return on capital employed (ROCE) metrics will be essential for evaluating efficiency improvements.

5. ESG disclosures and regulatory scrutiny

With evolving ESG investment mandates, transparency in sustainability disclosures could play a more central role in determining MKS’s investment desirability. Corporate governance best practices, data privacy standards, and ethical sourcing performance are likely to face tighter scrutiny from regulators and investors alike in 2026.

Conclusion

MKS enters 2026 with positive momentum, but not without risks. As the company advances into the next chapter of its modernisation strategy—with a sharper digital focus, enhanced customer propositions, and tighter cost discipline—shareholders could benefit. However, sustained valuation expansion may depend on successful delivery across these vectors, in an environment likely to be shaped by macro and regulatory headwinds.