Marks & Spencer regained its crown as the UK’s biggest womenswear retailer over the summer for the first time in four years, helping drive a much better than expected 56% increase in profits.
The retailer also confirmed it would pay out almost £20m to shareholders in January in its first dividend since 2019 as pre-tax profits soared to just over £360m, well ahead of analysts’ expectations.
M&S said underlying sales of clothing rose 5.5% in the six months to 30 September, with particularly strong performances in holiday wear and denim, while profit margins increased to more than 12% from 9.8% as fewer items had to be sold on discount.
Food sales at established stores rose almost 12%, as M&S said it had increased the number of item sold at a greater rate than the big supermarkets, helping it to gain market share. Sales of its budget range Remarksable soared 45%, with basic items such as butter and milk found in one in five customers’ baskets.
Stuart Machin, its chief executive, said the chain was experiencing a strong start to Christmas trading, with sales of women’s partywear up 50% and seasonal food to order up 25%. However, he said customers had said they were uncertain about the post-festive period.
“There is no doubt that spirits seems to be high for Christmas,” he said. “The majority of customers say they are not sure what is going to happen next year, particularly with geopolitical events and the cost of living when it comes to energy bills or mortgage rates. They are slightly cautious, and that’s why we are also slightly cautious.”
M&S credited its better-than-expected performance to “healthy volume growth and reduced promotions in food, higher than expected full price sales in clothing and home, and structural cost reduction supporting robust margins”. M&S shares rose 9% in early trading on Wednesday, making it the biggest riser on the FTSE 100.
The group’s house broker Shore Capital said the profits were 39% ahead of its prediction and it was upgrading its expectations for M&S’s full-year profits by 12% to £646m.
“To misquote the great and recently retired Michael Caine, AKA, Charlie Croker of the iconic British movie The Italian Job, M&S ‘blew the bloody doors off’ in [the half-year],” the analyst Clive Black said in a note.
Machin said: “We’ve sold more product and served more customers across food and clothing and home, with both businesses outperforming the market.”
He said sales growth had been supported by a £30m investment in cutting prices on food items and upgrading the quality of 500 lines, while on clothing, the group had “backed lines with authority across core and seasonal product” at the same time as improving its style and value credentials.
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The group closed four ageing stores in the half-year and relocated two – in Leeds and Liverpool, as well as a new site in Croydon. A further six stores were refurbished.
One blot on the figures was a rise in M&S’s share of losses at Ocado Retail, its online grocery joint venture. Its loss from the venture mounted to £23.4m in the half from £0.7m a year before as its total losses surged to more than £80m, partly as a result of a warehouse closure and lower than hoped for sales growth.
M&S said its trading momentum has been maintained through October and it expected a good Christmas but cautioned that it was not relying on favourable recent market conditions persisting.
It said it was not upgrading full-year profit expectations as it would continue to invest in price and the opening of new stores and closure of old ones.
“The outlook remains uncertain with the probable impact on the consumer of the highest interest rates in 20 years, deflation, geopolitical events, and erratic weather,” M&S said in a statement.
