Marks and Spencer's Earnings Resilience in Economic Turbulence


Marks and Spencer is scheduled to present its profit figures, which will shed light on how its customer base is coping with the current economic pressures. 

The retailer is expected to show an increase in earnings for the six-month period leading up to September when it shares information with its investors this Wednesday (08-Nov-23). 

Forecasts by Numis Research analysts suggest that the company’s pre-tax profits may reach approximately £270 million, a rise from the £206 million reported in the same period last year. 

The business is noted for its seasonal performance, with the latter half of the year, including the crucial Christmas shopping season, typically generating higher profits. 

In August, Marks and Spencer indicated that its earnings for the half-year are likely to exceed initial estimates, following a gain in market share across its clothing and home, as well as food sectors over the summer period. 

These observations point to a degree of resilience in consumer spending, despite a challenging environment for retailers characterised by rising mortgage expenses and increased household bills impacting the financial capacity of consumers.



Technical Analysis

Marks and Spencer has maintained a bullish rise since the turn of the year which was support by the golden cross highlighted on the chart that occurred in late January. When the 50-day crosses above the 200-day moving average, it’s called a golden cross and is considered bullish, particularly in a bear market. It indicates that the market may be heading toward a longer-term uptrend or bull market. You can also see on the chart the last time Marks and Spencer reported the stock experienced a 17% increase on the back of better-than-expected results.

Call Option

buy BUY 10 Nov23 220 Call @ 6p

Trade Idea

LONG At the Money (ATM) CALLS

Call Options

6p x 10 contracts x 1000 shares underlying 

Total consideration £600 

Buying this option gives you 22 times leverage compared to buying the shares outright. Trading this strategy is a defined risk strategy meaning you can only lose the initial debit paid for the options.

Call Option

buy BUY 60 Nov23 240 Call @ 1p

Trade Idea

LONG Out the Money (OTM) CALLS

Call Options

1p x 60 contracts x 1000 shares underlying 

Total consideration £600 

Buying this option gives you 220 times leverage compared to buying the shares outright. Employing this strategy is best used when you expect a large move on the underlying like we saw back in May.

Both options give you unlimited upside potential, but the difference is in how close to the underlying price is to your strike price. An option with a strike price closer to the underlying stock price will be more sensitive to a move but is in turn more expensive to buy. You forego this sensitivity on the out of the money calls as you expect a large move. These options are less expensive so allow you to buy a lot more leverage.

It’s very important to understand that you need the underlying to be above 241 by expiry just to break even, but if we see a 15%-20% move after earnings an option worth 1p could be priced around 13p. It’s on large scale moves like we saw in May that out of the money calls are the best strategy to employ for maximal returns.

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