Marks & Spencer said its turnaround plan was starting to pay off as it returned to profit but warned of the impact of supply chain strains and higher labour costs over coming months.
The retailer reported a profit of £187.3m for the six months to 2 October compared with a pandemic-induced loss of £87.6m a year earlier – helped by a bounce-back after lockdowns as well as the “hard yards” of its transformation taking effect.
Shares surged by 16% as M&S also upgraded its profit guidance for the full year – for the second time in three months.
Image: Chief executive Steve Rowe said underlying performance was improvingSales in its revamped clothing and home division were 1% lower than pre-pandemic levels but there was a marked contrast between stores, where they slipped by 17.6%, and online – which saw an increase of 60.8%.
“The re-engineering of the clothing and home operating model is now demonstrating its potential to reverse years of decline in the business,” M&S said.
AdvertisementFood sales grew by 10.4% while an online tie-up with Ocado – which ditched previous retail partner Waitrose – was affected by a slowdown compared to a lockdown boost a year ago.
There was also a fire at a major Ocado warehouse in Erith in July.
More from BusinessM&S has been undergoing a painful transformation as it aims to restore its fortunes after years of struggle as well as recovering from the impact of the pandemic – which is continuing to affect trading at city centre sites.
The plan includes the closure of at least 110 stores, relocation to new sites, downgrading to food-only outlets or consolidation of shops into one, with the aim of reducing its “full-line” stores to 180.
Image: Shares surged on the resultsBut it also means the opening of new sites, with 20 currently in the pipeline, including six that were once home to collapsed rival Debenhams – now an online-only brand owned by Boohoo.
M&S now believes the plans are starting to pay off and said, while acknowledging that “well publicised cost pressures will become progressively steeper”, it expects full-year profits to come in ahead of expectations.
Chief executive Steve Rowe said: “Given the history of M&S we’ve been clear that we won’t overclaim our progress.”
Mr Rowe acknowledged the benefits of the bounce-back from the pandemic “as well as the headwinds from the pandemic, supply chain and Brexit, some of which will continue into next year”.
“But, thanks to the hard work of our colleagues, it is clear that underlying performance is improving, with our main businesses making important gains in market share and customer perception,” he added.
“The hard yards of driving long-term change are beginning to be borne out in our performance.”
The group said driver, warehouse and supplier labour shortages were “creating additional pressures for all retailers, including M&S” – with plans to address this including bonuses for drivers.
It added that supply chain issues and rising labour costs as well as post-Brexit border increases meant “the cost incline becomes steeper in the second half and steeper again in the 2022/23 year”.
But M&S said there was further scope to implement improvements across the business and that trading in recent weeks had been ahead of plan – as it upgraded its annual underlying profit guidance again, from £350m to £500m.
Richard Hunter, head of markets at Interactive Investor, said: “Marks & Spencer was one of many companies where the pandemic forced accelerated change and the results are beginning to bear fruit.
“Indeed, the figure which reflects the improvement most sharply and shows a company at full throttle is another upgrade to full-year guidance.”
