Yahoo Finance M&S faces ‘gathering storm’ as profits plunge by 24%
Marks & Spencer has said it faces a “gathering storm”, with next year likely to be more challenging than this after reporting a near 24% fall in profits.
The clothing, food and homewares retailer said sales rose 8.8% to £5.6bn in the six months to 1 October but underlying pre-tax profits sank 23.7% to £205.5m as its Ocado online grocery joint venture fell into the red, it pulled out of Russia and held off passing on cost rises to customers.
M&S said it was currently trading well, with clothing sales up 4.2%, food up 3% and international sales up 4.1%.
However, its chair, Archie Norman, said the retailer was “now in the consumer crunch period” and there was also a “cost-of-doing-business crunch” as rising wages, energy, packaging and transport costs hit profits. “We all of us have got to run faster up the down escalator,” he said in a presentation to investors.
The retailer said in a statement: “Across all M&S markets it is highly likely that conditions will become more challenging in [the next year]. However, far-reaching changes made over the past few years, alongside a reinvigorated product offer and strong value for money credentials provide some insulation from the gathering storm.”
Stuart Machin, the chief executive, said that M&S’s focus on essential clothing items such as lingerie, school uniforms, socks and tights as well as its older and slightly more affluent customer base, who are less likely to be hit by mortgage rate increases, would help protect it from the squeeze on household budgets to some extent.
The group also has more scope to improve efficiency, after investing in new technology and improving its once troubled distribution network, than some other retailers.
“We are confident the business will emerge with a strengthened market position,” Machin said. “[Selling] the basics will stand us in good stead.”
Machin said M&S shoppers were prioritising spending on a family Christmas after two years of disruption because of the pandemic. He said there were signs of a switch to dining at home after a year of customers enjoying the reopening of restaurants after pandemic lockdown. Party food orders and pyjama sales are up but so are sales of the group’s “remarkable value” budget food range.
Profits at M&S’s food business dived 42% as the company said it had not passed on the full effect of an 11% increase in the cost of its supplies, while food waste had risen as demand changed over the summer. Sales at Ocado fell 4.2% and it dropped to a £0.7m loss as shoppers returned to high streets. The online grocer will be relaunching its website and working more closely with M&S in an effort revive sales.
Clothing and homewares profits soared by just over a third after sales rose by 14% as shoppers returned to stores after last year’s restrictions on trade related to the coronavirus pandemic.
M&S said it had already put clothing prices up by about 7% and was likely to have to raise them again after a fall in the value of the pound against the dollar, which is used to pay clothing suppliers overseas.
The retailer gained a bigger slice of the clothing and homewares market for the first time in a decade as sales of dresses jumped by 50% and men’s suits by more than half, while holiday gear was also popular as the UK returned to socialising and in-person events such as weddings and trips abroad.
M&S said the introduction of 50 external brands, including Superdry, Ted Baker and Clarks shoes, had also increased sales and brought in new younger shoppers.
The retailer said last month that it wanted to close 25% of its bigger stores selling clothing and homeware while opening more than 100 new Simply Food outlets, with it speeding up a turnaround plan in the face of a “difficult economic backdrop” and rising costs.
