Next shareholders are 12% better off this morning, helping Marks & Spencer (+4.75%), after another very welcome upward revision to guidance, this time for both sales and profit.

Having already been narrowed from ‘-3.5% to +0.5%’ to ‘-3% to +0.5%’ in early August, the revised range for full-year sales growth is now a much more attractive ‘-2% to +1.5%’. In turn this has allowed expectations for pre-tax profits to be nudged higher, from £680-740m to £687-747m, and surplus cash flow from £307m to £310m. The latter increases the likelihood of over £50m being available for a supportive share buyback on top of two remaining 45p special dividends

Shareholders may even be wondering whether today’s upgraded guidance figures are conservative, destined for a beat to ensure a 2016-17 run of downgrades is water under the bridge. Especially with an earlier than usual arrival of cooler weather that could kick-start the run-in to the key Christmas period via increased sales of bigger ticket heavier Autumn/Winter items.

First half performance was poor to say the least with Retail profits -33.3% on Retail Sales -8.3%, however, this was in line with already cautious guidance. Encouraging, less challenging trends over the last three months (directory sales growth even stronger in Q2) has left management confident enough to be more optimistic about the rest of the year. This bolsters revived summer bullishness towards the shares (despite a still squeezed UK consumer).

Today’s news has helped the shares break above 11-month support-turned-resistance at 4500p. Perhaps exacerbated by panic among fresh short positions (now 6.1% short interest vs. 5.1% in early Aug) watching the shares make a fresh 2017 high just shy of £50. Even better is this breakout potentially signalling a bullish technical pattern (2017 inverse head & shoulders reversal) that could take the shares all the way back to last September’s highs of 5700p. Might the shares have another potential 15% upside in them?

Mike van Dulken, Head of Research, 14 Sept 2017