Marks & Spencer has reported better-than-expected profits for the first half of the year, boosted by strong growth in its food unit and further improvements in its clothing offer on the back of its turnaround strategy.
Over the 26 weeks to 30 September, the group’s underlying pre-tax profit jumped 75.3% to £360.2m on sales up 10.8% to £6.2bn.
Food sales grew 11.7% on a like-for-like basis, outperforming the traditional supermarkets after moves to improve its competitiveness and product offering continued to pay off. Adjusted operating margin also recovered to 4.3%, from 2.2% last year, driven by volume and market share growth, manufacturing efficiencies and the benefits of its Gist acquisition last year.
Like-for-like sales in the Clothing division rose 5.5% after benefitting from “improved style and value perceptions” among shoppers.
Meanwhile, Ocado knocked £23.4m off M&S’s interim profits, compared to a £700,000 loss in the same period a year earlier. It comes months after M&S bosses told shareholders they were “not happy” with the performance of the joint venture.
M&S Chairman Archie Norman stated in July that there was “work to do” to improve its performance. The retailer has been pushing for more of its products to be stocked on Ocado and for product launches to happen at the same time as in its stores.
M&S said today the Ocado business was now in the “early stages” of returning to profitability, with around 80% of its products now stocked on the online grocer’s store. It noted that while Ocado had generated significant volume growth and buying benefits for M&S Food, the “potential of the venture has yet to be realised”.
Despite M&S’s strong overall figures, its Chief Executive warned that he remains cautious about the year ahead. Stuart Machin said high interest rates, slowing price rises, global conflict, and erratic weather could hit trading.
Whilst acknowledging that progress with its turnaround plan wouldn’t be “straightforward”, he was hopeful that the company’s recent return to growth would continue.
Machin noted that the business was planning for a good Christmas with customers “responding positively” to its latest ranges. He revealed that sales of party food and clothing were both up, with many of its customers telling the firm they are preparing for bigger family Christmas celebrations.
“Customer food to order is up 25% on last year, and in clothing, men’s and women’s partywear is significantly up. Spirits are high for Christmas,” Machin said.
However, he said the business was still conscious of household budgets being squeezed in the run-up to the key trading period and promised that any falls in food costs would be passed on to customers “immediately”.
M&S has been reaping the rewards of a costly investment programme to improve the quality and value of its clothing and food, upgrade its technology and e-commerce operations, and radically overhaul its store estate.
Richard Lim, CEO at Retail Economics, commented: “The retailer continues to showcase a mightily impressive turnaround of the business with these latest figures demonstrating significant improvements in sales and profitability. Their renewed product focus, investment in omnichannel and sophisticated use of data has been supercharged by a re-energised culture.
“However, the outlook remains challenging with the combination of higher interest rates, weaker economic growth and geopolitical events creating significant uncertainty.”
Mark Crouch, an analyst at eToro, added: “After multiple false dawns over the years, Marks & Spencer’s turnaround looks like the real deal this time. This is a very strong update from the retailer, carrying on the momentum from its August trading update.
“Unsurprisingly, M&S’s food section drove profits and revenue growth over the past three months, although the firm’s clothing and home, and international divisions also registered growth. The only disappointment – and a continuing one, at that – is the company’s joint venture with Ocado, which continues to be loss-making.
“While finances are still tight for many households, M&S’s focus on value and price reductions has shored up sales, which makes us confident that it can maintain its strong performance going into the all-important Christmas trading season.”
NAM Implications:
- M&S patently showing improvement at both top and bottom lines…
- The issue will be if these results will trigger higher expectations of suppliers…
- …both food and non-food.
- Meanwhile, without an alternative to hand and despite the signalling…
- …a split with Ocado is unlikely.
