M&S celebrates turnaround strategy with sales increase

Marks & Spencer smashed its annual profit expectations and announced that it would reinstate a modest dividend in November, as the turnaround plan gains momentum.

The adjusted pre-tax profit for the year ending April 1 was £482 millions, down from £522 millions last year but higher than expected at £431million. The retailer explained that the lower figure than last year was due to the government’s loss of nearly £60 million in business rate relief during the pandemic era. The retailer also noted that clothing and food costs continue to rise.

The group’s revenue for the past 12 months increased by 9.6 percent to £1.9 Billion, driven by both its strong food division and signs that it has a revitalized clothing and home business. Food sales rose 8.7% to £7.2 billion while clothing and home sales grew 11.5% at £3.7 billion. This was ahead of analysts’ expectations.

M&S told its shareholders that the new financial period had started off “well” despite “uncertainty” about consumer spending.

Stuart Machin, 52-year-old chief executive of the retailer, said that the performance is evidence of progress made in turnaround plans. The plan has seen the retailer shut down dozens of larger stores as part of a portfolio overhaul.

He said that after a year, the strategy we implemented to reshape M&S to be more growth-oriented has continued to drive trading momentum. Both businesses continue to grow in sales and market shares. “Our food, clothing, and home businesses invested to protect our customers from inflation’s full force. This, while impacting our margins, was the right decision, because serving our customers is the only way to deliver for our shareholders.”

The retailer stated that the company has “improved its operating performance” and “has a stronger balance sheet with credit metrics comparable to investment grade”. As a result, the board intends to reinstate a “modest annual dividend” to shareholders. This will begin with an interim distribution at the November trading update. The retailer had suspended dividends at the beginning of the pandemic in order to protect its balance sheet.

M&S said that it expects “modest” growth in revenue for the 2023-24 fiscal year, as consumer spending remains uncertain and costs inflation is high.

The company expects that it will face an increase in energy costs of more than £50million and a rise in employee pay of more than £100million over the next year. However, they have a plan to offset these increases with a cost cutting plan to save another £150million a year.

Joshua Warner, City Index’s market analyst, stated: “M&S stocks should find support this morning, after the company exceeded expectations in its sales of food, clothing, and homeware. Profits were affected by inflationary pressures, but they declined much less than expected. The firm hopes to offset further cost increases this year through cost-savings. “The promise to continue delivering profitable growth in sales bodes well for a new financial year.”

Investors will also “celebrate the commitment to restore dividends this year”, he added.

Early trading saw shares of the company, which had increased by 32 percent in the last year, up 7.61 percent, or 12p.

Ocado Retail (a joint venture between M&S & Ocado) saw its sales fall by 1.2% in 2012. This was due to lower volumes, as a result from a reduced shopping frequency following the pandemic. It reported a loss of £29.5m, compared to a profit of £13.9m the previous year. The effects of increased fixed costs due to under-utilised capacities had a negative impact on profitability.

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