M&S flags brighter profit outlook - but faces cost and supply stormclouds

Marks & Spencer has increased its annual profits outlook for the second time in less than three months after a sales rebound, but warned over surging costs and disruption due to supply-chain issues.

The retail giant saw underlying pre-tax profits jump to £269.4 million in the six months to October 2 against losses of £17.4m a year earlier, and up 52.8 per cent on two years previously.

The group said it expects full-year underlying profits to beat expectations, now guiding for around £500m – having already upgraded its guidance in August to above £350m. This comes despite warnings over "significant" supply-chain cost rises over the second half, which it said will continue into the new financial year.

The chain said it is battling amid shortages for lorry drivers, warehouse and supplier staff, so is increasing pay, "which will put pressure on costs in the remainder of our financial year".

'It is clear that underlying performance is improving,' says the high-street stalwart. Picture: Justin Tallis/AFP via Getty Images.

However, it said its food arm is "well placed" for the challenges, and added that profits are still set to top expectations, with the trading rebound continuing into the second half so far. "We expect the strong demand relating both to the bounceback and improved customer perception to be sustained in the near term."

The firm has been buoyed in part by pent-up consumer demand since reopening its clothing and home stores following lockdown measures.

Chief executive Steve Rowe said the "hard yards of driving long-term change are beginning to be borne out in our performance". He added: "Given the history of M&S we've been clear that we won't overclaim our progress.

"Unpacking the numbers isn't a linear exercise and we've called out the Covid bounceback tailwinds, 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."

Its first-half earnings boost came after sales rebounded by 10.4 per cent on a two-year basis in the food business, while clothing and home sales fell 1 per cent, but lifted in the second quarter.

Full-price clothing and home sales also jumped 17.3 per cent after M&S made its ranges more focused, reducing promotions and selling a substantially smaller summer range.

Strong

John Moore, senior investment manager at wealth manager Brewin Dolphin, said: “M&S has reported a strong set of results for the last six months, with food sales up 10.4 per cent and that division continuing to drive the business – particularly through its Ocado partnership and retail park stores that remain the unlikely stalwart of the market since the pandemic.

"For its clothing and home business, M&S is starting to turn the page with additional brands coming on board and a renewed focus on its online store offering a better foundation. Credit is due to the management team for turning around something that was heading toward being uninvestable to being a potentially attractive recovery story.

"However, there is still a question mark around next steps as the company moves beyond its so-called ‘fixing the basics’ phase. Shares have been on an upward trend and, should that momentum continue, they could regain their FTSE100 place in time, but external factors with the supply chain and rising labour costs could be enough to flatten those goals.”

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