The high street giant reported a 23.7 per cent slide in underlying pre-tax profits to £205.5 million for the six months to October 1 as it saw double-digit inflation in food costs, as well as more difficult trading in its Ocado retail joint venture. Profits were also hit by the cost of higher property taxes after the end of business rates relief, as well as the group’s exit from Russia.
M&S said like-for-like sales jumped 13.7 per cent across its resurgent clothing and home division as its bounce-back gathers pace, while comparable sales lifted 3 per cent across its food business. However, underlying earnings in the food division slumped to £71.8m from £124m a year earlier as it said it chose not to pass on an 11 per cent costs increase in full to customers.
The group warned of “more challenging” trading ahead in the cost crisis and said it is looking to make savings of around £150m in 2023-24 to offset soaring inflation and help it weather the storm. M&S, which has closed a number of Scottish stores in recent months, said it expects to post full-year pre-tax profits “similar” to the guidance it set out previously, with most analysts expecting a fall in underlying profits to £397m against £523m in 2021-22.
Chief executive Stuart Machin said: “Trading in the first half has been robust, with both businesses growing ahead of the market, reflecting the beginnings of a reshaped M&S. This progress means we face into the current market headwinds with an increased resilience and level of confidence. Looking beyond the current stormy weather, much is in our control and our mandate is clear - to step up the pace, accelerate change, drive a simpler, leaner business and invest in growth opportunities to build a reshaped M&S.”
M&S recently said it is speeding up a major shake-up of its stores estate, which will result in the closure of 67 larger shops as part of long-term plans to axe 110 stores under a sweeping overhaul led by previous boss Steve Rowe.
John Moore, senior investment manager at wealth firm RBC Brewin Dolphin, said: “M&S has seen a decline in profits, but the effects of the economic downturn are yet to really show themselves in the company’s numbers. Still, M&S has come out fighting with its update, highlighting the range of self-help measures it is taking. Being on the front foot regarding cost savings is helpful going into what will undoubtedly be a very tough next 18 months.”
Mark Crouch, analyst at social investing network eToro, noted: “This is not just a set of results, this is an M&S set of results - there’s always some room for disappointment. Investors will be unhappy to see that the firm has deferred a decision to reinstate share buybacks despite ‘significant improvements’ in its balance sheets until the end of the year. No doubt it wants to see how the holiday shopping season goes before committing.”