The transformation of Marks & Spencer, a 141-year fixture of the UK’s retail landscape, seemed to be making great strides.

Under the guidance of Stuart Machin, the retailer had revitalized its branding, successfully increased sales, and taken market share from competitors, all while its five-year restructuring initiative was progressing ahead of schedule.

Marks & Spencer’s food division benefited from a newfound perception of value, promoting itself as a destination for comprehensive grocery shopping, while enhanced clothing designs attracted younger customers who had previously overlooked the brand.

In October 2024, Tempus advised purchasing M&S shares, a decision that proved to be timely as the retailer reported a successful holiday season, leading to a share price increase of over 10% from October through mid-April.

This week’s annual financial results, covering the fiscal year ending March, illuminated why M&S shares garnered investor favor: both the food and clothing/home sectors closed strong, with annual pre-tax profits reaching £875.5 million, exceeding most expectations by £35 million.

The beginning of the new financial year also showed promise. However, a cyberattack over the Easter weekend severely impaired the company’s online operations and caused significant stock shortages in stores. As of now, a month later, customers remain unable to place online orders, and in-store food sales have suffered due to these supply challenges.

M&S anticipates this cyber incident will impact profits by approximately £300 million this year, although management hopes to recover roughly £100 million through insurance claims.

It’s important to note that this estimate is subject to change. Online disruptions are expected to persist until at least July, and there are no assurances that this will signal the end of the issues. Additionally, the Information Commissioner’s Office (ICO) is investigating since M&S acknowledged that hackers accessed personal customer data.

The ICO holds the authority to impose fines of up to 4% of a company’s global turnover for failure to implement adequate data protection measures. In M&S’s case, this penalty could reach around £553 million based on last year’s revenue of £13.82 billion.

Machin and his team maintain that there will not be any long-term effects on consumer sentiment. However, current investors may understandably feel uneasy, as loyal customers have had no choice but to seek alternatives for their groceries and clothing needs in recent weeks.

Once M&S resumes normal operations, the question remains: will these customers return with the same enthusiasm they displayed before the cyberattack that led to a forecast-beating financial performance?

M&S shares currently trade at a forward price-to-earnings ratio of 14.1, relatively high compared to other major UK retailers, with only Next trading at a higher multiple.

This does not imply that M&S shares are overly priced; however, they will need earnings improvements for further appreciation, which is uncertain at this time.

Since the revelation of the cyberattack, M&S shares have dipped slightly over 6%, although they remain above April’s beginning levels. This situation raises concerns given the ongoing uncertainties surrounding the business.

Currently, market consensus estimates pre-tax profits to decline to approximately £746 million for the ongoing financial year, followed by a bounce back to £978 million in the 2027 financial year and exceeding £1 billion by 2028.

Considering these high expectations, it is reasonable to demand clear evidence—rather than solely relying on management’s assurances—that customer purchasing behaviors have not been irrevocably altered.

Therefore, it seems prudent to re-evaluate recommendations to a “hold” stance. Current shareholders may opt to maintain their investments, but new investors might find it wise to observe from the sidelines over the summer as the complete repercussions of the cyberattack unfold.

Advice: Hold – Reason: Positive turnaround noted; however, full impact from cyberattack remains uncertain.