After a fantastic 2024, Marks and Spencer’s (LSE: MKS) shares have taken a hammering in 2025. They are down 8% year-to-date, making them the worst-performing retail stock on the FTSE 100. 

That’s a worse showing than Next, Sainsbury’s, Tesco and even JD Sports, which has struggled in the past year.

But before I get carried away, it’s worth looking at the bigger picture. Over five years, it’s still the best performer of the lot — up a remarkable 206%. So is this slump just a temporary wobble, or is it a sign of something deeper? I decided to dig deeper.

Recent developments

The most obvious headwind is the fallout from the April cyber hack. In early August, M&S resumed click-and-collect orders for clothing after a painful four-month pause. That disruption was costly — analysts estimate the total impact could reach about £300m in lost operating profit.

Still, there are positives. Food sales rose 6.7% year-on-year in the 12 weeks to 9 August. Research firm NielsenIQ reported that grocery growth accelerated to 4.3% as the worst of the cyberattack’s impact faded. 

In other words, shoppers still seem loyal to the brand.

Margins however, remain razor-thin. Net margin sits at just 2.14%, while return on capital employed (ROCE) is 5.26%. Earnings growth has slumped 32.5% year on year, though revenue climbed nearly 6% over the same period. On the balance sheet, debt and equity are finely balanced at roughly £2.93bn apiece.

One glimmer of hope lies in valuation. The stock’s trailing price-to-earnings (P/E) ratio of 24.7 looks steep, but the forward P/E drops to 14.8, suggesting earnings are expected to improve once the cyber fallout is behind it.

Looking ahead

Management clearly sees growth opportunities. M&S plans to invest £340m in a new automated distribution centre in Northamptonshire. Expected to open in 2029, the site should create more than 2,000 jobs and streamline logistics.

Meanwhile, analysts remain cautious. In a note on 26 August, Deutsche Bank lowered its price target from 450p to 435p, citing concerns about UK consumer resilience. Interestingly though, it still labels M&S a ‘preferred stock’ relative to peers such as Next, which it views less favourably.

The risks

Marks and Spencer’s business model is unusual in that it straddles two very different markets. On one hand, it competes with premium food retailers like Waitrose and the top-end own-label ranges from Tesco and Sainsbury’s. 

On the other, it’s fighting for market share in fashion against both budget retailers such as Primark and H&M, and online giants like ASOS and Boohoo.

This dual positioning leaves the company vulnerable on both sides. Rising costs could erode already thin food margins, while changing consumer trends might make it harder to defend its mid-market fashion business. Add in fierce competition, and it’s clear the path forward won’t be smooth.

Should I sell?

Despite the rocky start to 2025, I’m not rushing for the exit. M&S has reinvented itself before, and its long-term track record shows that management knows how to adapt. The cyberattack was a major setback, but it looks like the business is already recovering.

For me, it’s still a stock to consider buying. If anything, the recent dip could be a chance for long-term investors to pick up shares in this British retail icon at an attractive valuation.

These FTSE 100 stocks have rocketed in value during the past 12 months. But I think there’s a strong chance they could underperform after a frothy run-up, leaving them vulnerable to a potential correction.

Uncertain outlook

British American Tobacco (LSE:BATS) has proved an outstanding buy over the last year. It’s shares have surged more than 50%, while its generous dividend policy’s also furnished investors with a tasty passive income.

Can it continue rising though? I’m not so sure, as the firm’s previously attractive valuations have now vanished. Today, it trades on a meaty forward price-to-earnings (P/E) ratio of 12.6 times. This was around eight times 12 months ago.

British American shares have been helped by strong sales performances from its heavyweight brands. Resolute demand for Lucky Strike and its other cartons meant the company raised its sales forecasts over the summer.

But the long-term outlook for the company remains uncertain as new generations turn their backs on traditional cigarettes. Meanwhile, the sales picture for next-generation products like its Vuse vapourisers remains plagued with danger as regulators step up their attacks on their sale and usage, and the way they’re marketed.

Booming demand for weight-loss jabs also poses a substantial threat to British American, with medical studies showing that semaglutide-based medicines such as Ozempic are extremely effective in helping people quit smoking.

My fear is that rising evidence on these drugs’ impact on nicotine addiction could cause British American’s shares to sink. Similar concerns have already hit other ‘sin stocks’ recently. These include drinks makers Diageo and Pepsico (down 16% and 14%, respectively, over the last year).

Not even the tobacco titan’s 5.6% forward dividend yield is enough to encourage me to invest.

Another pricey share

Lloyds (LSE:LLOY) shares have also enjoyed a stunning rise over the past year. Up more than 40%, it’s now the FTSE 100’s most expensive bank based on predicted earnings (forward P/E ratio: 11.1 times).

I find this premium hard to justify given the bank’s poorer growth prospects compared with international operators like Barclays and HSBC. Lloyds faces significant headwinds that could force its share price to reverse sharply at some point.

Falling interest rates are a double-edged sword for retail banks. They can stimulate loans and reduce impairments, as Lloyds’ first-half profits beat showed. But they can also put margins under severe stress. With further Bank of England rate cuts (seemingly) around the corner, I’m fearful over the Black Horse Bank’s future profitability.

My main concern, though, is how it will generate turnover as the UK economy essentially flatlines. As I say, it doesn’t have overseas territories where growth may be stronger, nor an investment bank to stimulate revenues. As a consequence, it faces prolonged weakness as structural issues like a weak labour market, post-Brexit trade rules, high public debt and productivity problems facing Britain.

Like British American Tobacco, I won’t invest as I think the risks facing this UK share far outweigh the potential rewards.