M&S buffeted by gathering storm
MARKS & Spencer warned of a ‘ gathering storm’ as it grapples with rising costs while households face a squeeze on living standards.
The high street stalwart saw profits dive 23.7pc to £205.5m in the six months to October as it absorbed some of the hit it faced from inflation.
The fall in profit came despite overall sales rising 8.5pc in the period to £5.5bn, driven by a bumper performance of its clothing and home range.
M&S is the latest retailer to take a hit from inflation by keeping prices down for fear of putting off hard-pressed customers.
The company said profit for the full year would be below last year’s level, with analysts expecting it to earn £397m in the 12 months to April.
And M&S warned it will face a ‘material contraction’ in demand in the next financial year.
‘It is highly likely that conditions will become more challenging,’ the company said.
‘ However, the far- reaching changes made over the past few years, together with a reinvigorated product offer and strong value-for-money credentials provide some insulation from the gathering storm.’ Shares fell 3.4pc or 3.9p to 113.1p.
The gloomy outlook overshadowed an otherwise impressive set of figures, which boss Stuart Machin said showed progress in the group’s turnaround.
In its clothing and home range enjoying a revamp after years of decline, half-year sales jumped 14pc to £1.7bn while profit in the department rose 9.7pc to £171m. It was the first time in a decade M&S’s clothing arm picked up market share from rivals.
Interactive Investor markets head Richard Hunter said: ‘Seen as a dowdy and limited shopping experience, M&S has invested heavily in changing perceptions of style, while also adding an increasingly strong online alternative to the offering.’
M&S food saw sales jump 5.6pc to £3.3bn. Despite the increase in sales, profit was cut in half to £71.8m by soaring costs and M&S’s decision to absorb some of the hikes.
Hunter said: ‘ The food business also continues to make its presence felt, although the decision not to pass on some of the costs which the group is incurring has inevitably impacted the numbers.’
As the festive period approaches, Machin said M&S shoppers are dining out less to save money and ‘ protect their Christmas spend’. ‘ There is a good Christmas ahead of us,’ he said.
And co-chief executive Katie Bickerstaffe said the cost of living squeeze has seen shoppers bring forward Christmas spending. She said:
‘Our customers have already bought about 30pc of their Christmas gifts, so people are planning forward.’