Marks and Spencer lifts sales as turnround strategy bears fruit

Marks and Spencer has posted an increase in annual sales and profits, sending shares up almost 12 per cent on Wednesday and cementing its position as the best-performing retail stock in the UK in the past year as its turnround gains momentum.

The 139-year-old company, which for more than two decades has been promising investors and customers a revival, said sales were up 9.9 per cent to almost £12bn in the year to April 1. Pre-tax profits rose to £475.7mn from £391.7mn. 

M&S plans to reintroduce a modest dividend to shareholders from November after it suspended payments at the start of the pandemic to protect its balance sheet.

The group’s shares surged 11.7 per cent to 182p in morning trading. The stock is up 46 per cent in the past year, the most of any retailer in the FTSE 250, and more than any other retailer in the FTSE 100, according to Bloomberg data. On a five-year basis, however, it is down almost 40 per cent.

Chief executive Stuart Machin, who succeeded Steve Rowe a year ago, hailed “sustained trading momentum” across all parts of the company, adding that food outperformed the market “with customer perception for quality and value the highest in six years”.

While inflation was moderating, it remained high, he added, driven by elevated commodity and energy prices as well as wages. “It has hit us as a retailer more than we’ve ever experienced,” Machin said. “I’m sure it will reduce and get a bit better, we’re hoping by the autumn, but we need to see.”

Food sales were up 8.7 per cent to £7.22bn, ahead of consensus, while its clothing and home performance also increased 11.5 per cent to £3.72bn, beating analysts’ expectations.

Machin and co-chief executive Katie Bickerstaffe have been focusing on improving the quality and price of food and clothing ranges as they seek to deliver a 1 per cent increase in market share for each division in the next three to five years.

“Stuart likes to give us the hurry on, so we’re going to try very hard to do that a little bit quicker,” Bickerstaffe said. The brand has been facing increasing competition from the likes of Primark and nimbler online retailers.

M&S’s grocery market share stands at 3.6 per cent, according to the most recent Kantar figures, and it has a 9.3 per cent share of the clothing and footwear market.

Like-for-like food sales were up 5.4 per cent year on year, while sales of clothing and home, typically a thorn in the side of the retailer after several failed reinventions, increased 11.2 per cent.

The company, however, warned that the economic outlook for consumer spending remained uncertain amid persistently high inflation. It has forecast a modest growth in revenues and a slight decrease in profits for this financial year, although this is still ahead of market expectations.

Interim finance chief Jeremy Townsend said on Wednesday that he expected profit to be £5mn to £10mn below last year’s outcome. Refinitiv data puts the current consensus forecast at £401mn.

Richard Chamberlain, a retail analyst at RBC Capital Markets, said M&S had been making progress with its food business, “helped by improved value for money perception, range development and its joint venture with Ocado Retail”, but warned that the division was relatively labour and energy intensive.

He added: “M&S’s clothing and international businesses have benefited from a better offer and execution recently.”