M&S warns of cooling sales but experts say food could provide 'secret weapon'

Marks & Spencer is to quit its Russian franchise business as it also warned that its sales growth is likely to cool, though some experts believe the chain could stand to benefit from the cost-of-living crisis.

The high street stalwart’s Russian arm, which is run by Turkish franchisees, operates 48 shops and has some 1,200 employees.

In March, M&S stopped shipments to the stores but has now said it will “fully exit our Russian franchise” and face a £31 million hit as a result.

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It said profits for the new financial year will start at a lower level due to the impact of its withdrawal from Russia and the end of the business rates holiday. M&S added that it expects this will stay lower throughout the year “given the increasing cost pressures and consumer uncertainty”.

The group highlighted that this is weighing on customers’ ability to spend and it expects this pressure to increase further in the year.

“We are therefore planning for an adverse impact on volumes due to price inflation, slowing the rate of sales growth,” the group added.

Trading over the past six weeks has been ahead of levels from last year, driven by strong sales in its clothing and home operation.

M&S added: “While encouraging, we expect the impact of declining real incomes to sharpen in the second half and endure for at least the remainder of the financial year.”

Marks & Spencer has emerged from several years of transformation in a fitter state but now faces a cost-of-living crisis. Picture: Lisa Ferguson

The warnings came as M&S swung to a pre-tax profit of £391.7 million for the year to April 2 in Steve Rowe’s final outing as chief executive. He will hand over leadership to Stuart Machin and Katie Bickerstaffe after leading the group’s turnaround over the past six years.

M&S said its clothing and home business returned to growth during the year, with sales rising 3.8 per cent against levels from two years ago, before the full impact of the pandemic. It said this was underpinned by a 55.6 per cent surge in online sales, while stores fell by 11.2 per cent.

Meanwhile, the group’s food arm reported a 10.1 per cent sales increase.

Third Bridge analyst Ross Hindle noted: “M&S’s food offering continues to deliver for the group and our experts say it could be their secret weapon against the inflationary pressure set to rattle other supermarkets.

“M&S’s premium brand positioning means they are less vulnerable to the pressure from discounters and many of the shoppers they do lose will be replaced by new customers trading down from eating out. Also, the old habits of splitting grocery shopping between multiple supermarkets are back, now the need to do one big weekly shop and return home has dissipated with Covid.”

Richard Hunter, head of markets at investment platform Interactive Investor, said: “There is much to like about these numbers from M&S, but there is also much to do before the company can regain its previous status and profit levels.

“The company has unquestionably made great strides over recent years in an overhaul of the business which was forcefully accelerated due to the pandemic.”

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