Marks & Spencer has posted a better-than-expected surge in annual profits after its turnaround strategy continued to deliver positive progress across its food and clothing divisions.
Over the year to 30 March, the group’s profit before tax and adjusting items jumped 58.0% to £716.4m on sales up 9.4% to £13.1bn. Chief Executive Stuart Machin hailed results as the “beginnings of a new M&S” with “wind in our sails, and confidence that our plan is working”.
The profit improvement was driven by cost savings of £180m, which included reducing the number of shop staff and lowering the cost of delivering food to its stores after buying its logistics provider Gist in 2022.
M&S confirmed today that it was increasing its five-year target for cost cuts by £100m to £500m by 2028, with increases in staff pay offset by “structural cost reductions and other efficiencies”.
In its Food division, sales grew 13.0% to £8.16bn, with like-for-likes up 11.3%. Sales and volume growth, as well as the benefits of sourcing and structural cost reductions, led to adjusted operating profit growing 59.4% to £395.3m (4.8% margin).
In addition to benefitting from a shift towards eating at home rather than at restaurants, the performance of M&S Food was driven by price reductions and the launch of 1,300 new lines, which has helped broaden its demographic reach and boost its market share.
Six new M&S Foodhalls were opened during the year as part of its full line store restructuring programme, as well as eight standalone outlets. The group noted that its latest Simply Food stores average 13,000 sq. ft. in size compared with a current average of 8,000 sq. ft., enabling the retailer to stock a more comprehensive range that appeals to consumers doing a weekly shop.
This year, M&S expects to open nine new Food locations and accelerate investment in its store renewal programme, completing around 25 sites.
The group’s Clothing and Home division continued its recovery, with total sales increasing 5.3% to £3.91bn and like-for-likes up 5.2%. Improved gross margin supported by full price sales growth and the benefits of its cost reduction programme meant adjusted operating profit increased 24.4% to £402.8m (10.3% margin). Sales in key categories of women’s and menswear were said to have outperformed due to “improved product style, quality, and value”.
Sales at M&S’s international stores slid by 1% to £719m and Machin said this was now “resetting priorities” to step up progress.
Clive Black, a retail analyst at M&S’s broker Shore Capital, said the retailer had “materially beaten market expectations” and he had upgraded his expectations for the year ahead by about 12%.
Eleanor Simpson-Gould, senior retail analyst at GlobalData, added: “Marks & Spencer has performed well this year, not by engaging in aggressive pricing schemes in response to competition from discounters, a challenge that has beset the top three grocers, but by remaining steadfast to its brand identity as a purveyor of premium and consistently high-quality products.”
Whilst moves to improve the quality and value of its clothing and food products, upgrade its e-commerce operations, and modernise its supply chain and store estate are paying off, Machin stated today that “there remains much work to do”.
He added: “We need to move faster and be ruthlessly challenging on the areas where progress has been slower, building a more effective digital and technology infrastructure, accelerating the move to a truly personalised customer experience, and resetting priorities in International.
“We have a clear plan, a clear vision for the future, and there is so much opportunity ahead of us. We are at the beginnings of a new M&S.”
Meanwhile, the group’s share of losses at its Ocado Retail joint venture widened to £37.3m from £29.5m, with M&S reiterating that it did not expect to have to pay a final instalment for its share in the business. The group noted that profitability at the JV was “well below the original business plan and expectations”, but that it was working closely with Ocado Group to “reset the business” and drive customer and sales growth.
Ocado stated earlier this year that it could take legal action against M&S unless they reach an agreement over the final instalment of £190.7m as part of the payment for the £750m 50-50 tie-up, which was launched in 2019.
Machin added: “We’re committed to the turnaround strategy for Ocado Retail.”
NAM Implications:
- Patently, these results are based on sticking to its brand identity…
- …instead of price-cutting its way to improvement.
- Meaning they have not compromised future strategies…
- One issue has to be: Will M&S’s future depend on food or non-food?
- Results to date would indicate that food has more potential…
- …and perhaps pushing non-food more towards online.
- Finally, M&S do not need a legal battle with Ocado re final payment for the 50/50 deal.
