M&S raises profits outlook after revamp of clothing division pays off
A revamp of its clothing business has helped Marks & Spencer raise its profits outlook for the second time in less than three months but it has warned over soaring costs and disruption from supply chain problems.
M&S said its strong performance over the six months to October reflected a 10% jump in food sales as well as “substantial improvement” across its once-struggling clothing and homeware division.
The chief executive, Steve Rowe, said both parts of the business were making “important gains in market share” and added that “the hard yards of driving long-term change are beginning to be borne out in our performance”.
Together, they helped push pretax profits to £187m for the half-year, compared with a loss of almost £88m during the same period in 2020. The figure also blew past pre-pandemic profits of £159m, and Rowe said it was “clear that underlying performance is improving”.
Shares in the high street retailer rose more than 20% at one point on Wednesday morning on the back of the announcement.
The group expects full-year underlying profits to beat expectations, now guiding for about £500m, compared with £403m in 2020. M&S had already upgraded its guidance in August to above £350m – the first upwards calibration of its profits outlook this century.
M&S swung to underlying pre-tax profits of £269.4m in the six months to 2 October against losses of £17.4m a year earlier. Profits were 52.8% higher than they were two years ago, before the pandemic.
Overall, sales from the company’s revamped clothing and home business were down 1%, although online sales continued to grow, rising 61% over the period. It helped offset a near 18% decline in high street sales.
The company’s clothing division has been struggling since before the coronavirus pandemic, with sales falling for eight years straight. The business faced additional challenges at the start of the outbreak when non-essential retailers were forced to close their high street shops to customers during lockdown.
However, M&S said in its results on Wednesday that a “re-engineering” of the clothing and home business, which has included paring down its offering to a more focused range of items and reducing promotions, was “now demonstrating its potential to reverse years of decline”.
Rowe also credited the company’s overall performance to a “Covid bounceback” but warned that the retailer was still facing headwinds, including from Brexit and the pandemic, that could continue into next year.
“Well-publicised supply chain pressure, combined with pandemic supply interruptions, rising labour costs, EU border challenges and tax increases means the cost incline becomes steeper in the second half and steeper again in the 2022-23 year,” he said. “That will increase the importance of our productivity plans, store rotation and technology investment.”
M&S said some of these higher costs would be passed on to shoppers, with price increases set to pick up pace. But Rowe stressed that rises so far had been less than half the 2.1% inflation seen in the wider UK grocery market. “Our inflation will be in line with the market or less than the market,” he said.
The retailer said it was increasing pay to attract and retain workers, “which will put pressure on costs in the remainder of our financial year”. Despite supply chain difficulties, Rowe said shoppers would not be faced with big gaps in its ranges in the run-up to Christmas, although he said slippers were in short supply.
Last week M&S said it had already sold out of more than 40% of its online festive season food ordering range – including the biggest turkeys, puddings and its Brussels sprout gratin, as shoppers tried to get a head start on holiday shopping. However, it said it expected fresh deliveries to arrive throughout November and December.