- First half sales ‘robust’ despite spending slowdown
- Clothing and home business beats expectations
- Comments on next year's trading unsettle market
Retail favourite Marks & Spencer (MKS) dished up a strong trading performance for the six months to the start of October but a cautious outlook for the coming year sent its shares lower.
From a low of 94p a month ago, M&S shares had gained almost 25% to 117p heading into the interim results but gave up 4% to 112.5p in morning trading.
HOW WERE THE LAST SIX MONTHS?
Marks & Spencer had a mixed first half, with food sales underperforming clothing and home sales for the first time in several years.
Food volumes were ahead of the market, but the firm invested heavily in keeping prices down so sales in value terms rose just 5.6% or 3% on a like-for-like basis.
In contrast, despite the cost-of-living crisis, clothing and home sales jumped 14% driven by an 18.8% increase in store-only revenues.
Due to its decision to invest in prices by not passing the full effect of cost inflation on to customers, operating profit for the food business dropped more than 40% from £124 million to £71.8 million.
As well as facing double-digit cost of goods inflation, the food operation suffered higher fuel and logistics charges and incurred higher costs due to spending on technology.
It was a much happier story at clothing and home where full-price sales were well above the historic average thanks to higher in-store spending at shopping centres, although high street footfall and sales continued to lag.
Operating profits climbed over 30% from £128.4 million to £171.4 million with the net margin reaching 9.8% against just 2.2% in food.
WHAT ABOUT THE OUTLOOK?
Chief executive Stuart Machin praised the firm’s ‘robust’ first-half performance and said the business continued to trade well as it heads into the key holiday period with sales up across all areas.
‘Looking beyond the current stormy weather, much is in our control and our mandate is clear - to step up the pace, accelerate change, drive a simpler, leaner business and invest in growth opportunities to build a reshaped M&S’, added Machin.
Full-year pre-tax profits are seen flat on last year’s level of £392 million, in line with the firm’s original forecast in May, with the Ocado Retail joint venture seen making no meaningful contribution after incurring a small first-half loss.
What seems to have rattled investors was the observation that ‘across all M&S markets it is highly likely conditions will become more challenging’ in the 2024 financial year, which begins in April next year, although the firm qualified that with the comment that improvements in recent years would provide ‘some insulation from the gathering storm’.
