- First half profits up 75%
- M&S returns to dividend list
- But retailer is cautious over second half
Shares in Marks & Spencer (MKS) were marked up 9.5% to 246.5p after the retail bellwether reported a forecast-beating 75% jump in first half pre-tax profits and reinstated the dividend following a four year hiatus.
CEO Stuart Machin insisted the strategy to reshape the high street stalwart is delivering and Marks & Spencer appeared optimistic ahead of Christmas with its ranges chiming with consumers, although the retailer issued a cautious outlook for the second half.
REMARKSABLE PROGRESS
Results for the half ended 30 September from Marks & Spencer revealed a 10.8% group sales rise to £6.1 billion with the retailer helped by ‘surprisingly resilient consumer demand’ and the demise of competitors.
Adjusted pre-tax profit shot up 75.3%, from £205.5 million to £360.2 million, aided by the delivery of over £100 million of savings in the half and having further reduced net debt, Marks & Spencer also declared a 1p dividend.
Like-for-like sales rose 5.5% in the clothing and home division, supported by ‘more confident buying and further improvements in style perceptions’ and with stores outperforming online.
In food, like-for-like sales fattened up 11.7% with Marks & Spencer outperforming grocery rivals by lowering prices while maintaining levels of quality. One blemish on an otherwise excellent set of results was Marks & Spencer’s share of the Ocado Retail loss, which increased from £700,000 to £23.4 million.
OUTLOOK REMAINS UNCERTAIN
The FTSE 100 shopkeeper said its positive trading momentum was maintained through October and the retailer is ‘planning for a good Christmas, with customers already responding positively to our ranges’.
However, the company warned it is now lapping tougher comparatives and expects this year’s profit performance to be weighted towards the first half.
Marks & Spencer cautioned that 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. Notwithstanding this backdrop, we will continue to invest in trusted value for our customers and we are increasing our investment in the reshaping of M&S in the second half.’
EXPERT VIEWS
AJ Bell investment director Russ Mould commented: ‘Marks & Spencer positions itself as a retailer that provides good value for money. Clothing products and food items are good quality and that status tends to be remembered by shoppers. They want their cash to go a long way and Marks & Spencer has reclaimed its place as one of the first places shoppers go when wanting more products.’
Mould continued: ‘Admittedly the turnaround story has been playing out for a very long time and is far from over. In chief executive Stuart Machin’s own words, “lots done, lots to do, lots of opportunity”.
‘The joint venture with Ocado is not firing on all cylinders. Machin also indicates that more can be done to make a better return on investment with the digital channel on a group basis. However, most businesses will find their quest for improvement is never complete so it is hard to criticise Marks & Spencer on this front given its achievements elsewhere.’
Julie Palmer, partner at Begbies Traynor (BEG:AIM), said that ‘controversial adverts aside’, the results ‘demonstrate how successful M&S has been at reconnecting with their customer base, cutting costs and reshaping the business.
‘Like for like sales growth of 14.7% and a 75% leap in profitability is no mean feat in an inflationary environment that’s helped to create a cost-of-living crisis that hit right at the heart of consumers’ spending power.’
Palmer added that the joint venture with Ocado ‘continues to be the problem child and has dragged on profits but not enough to stop the high street veterans return to paying a dividend for the first time in four years. A real sign of the grocer’s newfound confidence.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Martin Gamble) own shares in AJ Bell.
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