One FTSE 100 stock that underperformed heavily last month was Marks & Spencer (LSE:MKS). The stock fell by 12%, putting it close to 52-week lows as we hit April. Here’s why the Marks & Spencer share price fell so heavily, and where I think it goes from here.

Shift in sentiment

The main driver behind the move lower was a change in sentiment following the outbreak of the conflict in the Middle East. Marks & Spencer does have some exposure to the region via a partnership with the Al-Futtaim Group. But the bigger concern is the indirect impact from knock-on effects. The high-street retailer is a bellwether for the UK consumer, and that wasn’t something to shout about during March.

Investors are increasingly cautious about the UK consumer, with sticky inflation, higher interest rates, and pressure on disposable income all raising questions about how resilient spending will be through 2026. Let’s take inflation as an example. The rise in energy prices has led the OECD to publish a report last week, expecting UK inflation to hit 4% by the end of the year. If this happens, it would put pressure on Marks & Spencer’s profit margins. If they choose to raise prices, it could see lower demand.

Regarding interest rates, the Bank of England’s committee might be forced to raise the base rate later this summer to counter inflationary concerns. The latest half-year results from last year showed net debt rose by 16.7% to £2.53bn. So higher financing costs would negatively impact the company (and financial results).

Therefore, even though the company didn’t publish any trading updates or major news during March, the drop reflects a change in investor expectations based on the ongoing impact of the war abroad. Long-term investors still need to be mindful of such short-term moves.

The view from here

Although I don’t want to sound like I’m sitting on the fence, a large part of the direction from here does depend on how quickly things can de-escalate in the Middle East. If we get a resolution in the coming weeks, it could significantly reduce the pass-through impact on inflation. The lower impact here could then mean interest rates don’t rise, in turn boosting consumer confidence in spending activity at Marks & Spencer later this year.

However, even if the conflict keeps going, the company could find some insulation from the increasingly diversified product offering. The food division continues to deliver strong growth and premium positioning. The clothing and home segment (once a persistent underperformer) has shown sustained improvement in both style and profitability. We haven’t even spoken about the various partnerships in place, which could further act to buffer any revenue hit from other areas.

In terms of risks (aside from the war), competition remains fierce. This is particularly true for the clothing and grocery divisions. Yet even with this, I think it commands a much better position in the market than in years past.

The stock is down 5% over the past year. Although I’m cautious about the immediate outlook, I think investors could consider allocating a small amount of funds as a starter position in the stock, and then pound-cost-average over the coming months.