M&S insists turnaround plan working as food sales flourish
Marks & Spencer’s turnaround plans appear to be on track after the retail stalwart upped its profit targets following strong food and clothing sales.
In an unexpected trading update covering the 19 weeks to August 14, M&S said it was on track to surpass the top end of its previous profit guidance of £300 million to £350m for the year.
The group believes the performance provides "strong confirmation" that it has benefited from its Never the Same Again overhaul programme, which has involved store closures and job losses.
M&S said it was also boosted by pent-up consumer demand since reopening its clothing and home stores following pandemic lockdowns.
It told investors: “At the start of the year, continued restrictions across large parts of the M&S store portfolio meant that the trading outlook was highly uncertain. Since then, M&S has seen an encouraging performance providing confirmation that the transformation programme is on track.”
But the firm added a note of caution, saying: “There remains substantial uncertainty as to the continued strength of consumer demand, as well as disruption in both supply chains and consequent pressures on costs and margin.”
The retailer said it was buoyed by a 10.8 per cent year-on-year jump in food sales for the 19 weeks to August 14, with this also 9.6 per cent up on the same period in 2019.
It said its food stores on retail parks have performed particularly strongly, while its hospitality and franchise sites are improving but remain below 2019 levels due to weaker footfall.
Clothing and home sales were 92.2 per cent ahead of last year's pandemic-hit levels and down just 2.6 per cent on the period in 2019, seen as a decent result.
It added: “The change in our approach to trading, including more focused ranges, fewer promotions and a substantially smaller summer sale, has resulted in full price sales up circa 9 per cent on 2019/20.”
Analysts at house brokerage Shore Capital described the update as “very encouraging news”.
They noted: “Such a market statement is clearly very good news and particularly welcome to those long standing investors in M&S' equity, who have, it has to be said, endured a sustained period of earnings disappointment.
“The announcement is particularly good news to us because it is the clearest indication to date that the group's fundamental transformation programme is more than talking a better talk, it is delivering an improved earnings outcome.
“We have not been here for some time, which makes it great to be recording an upgrade to profit expectations from M&S. Whilst so, neither the company or us for that matter are getting ahead of ourselves and for good reason.
“The pandemic is still with and amongst us and so cannot be written off as a potentially negatively disruptive force.”
M&S said international revenue was up 39.7 per cent on last year and down 5.2 per cent on 2019 despite the impact of lockdown in India in the early part of the financial year and “substantial” Brexit-related effects on the supply of food to its businesses in Ireland and France.