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In its half-year results for the 26 weeks to 2 October 2021,Marks and Spencer Group (MKS ) raised its profits outlook whilst warning of rising costs and disruption from supply chain problems.
The retailer, which recently revamped its clothing and home business, attributed the strong set of results to food sales growth of 10.4% and an improving margin mix, which together helped to deliver a rise in operating profit before adjusting items compared to 2019/20.
M&S reported profit before tax of £187.3m, up from £158.8m in 2019/20 and up from a loss of £87.6m in 2020/21. In particular, the Clothing & Home business delivered 17.3% growth in full price sales helping to drive a healthy improvement in operating profit before adjusting items.
The Group said it is making good progress on the store rotation programme that it had set out earlier in May with initial results from new full line store openings being encouraging to date.
CEO, Steve Rowe, said M&S’s underlying performance was improving, with its main businesses making “important gains in market share and customer perception.” He said: “the hard yards of driving long term change are beginning to be borne out in our performance.”
As a result of the improved performance, M&S told investors that it expects profit before tax and adjusting items for the year to be ahead of expectations and in the region of £500m.
Capital expenditure, partly as a result of supply chain delays, is running behind schedule at around £250m. M&S said net debt is likely to reduce more than previously anticipated, and that it is strengthening the balance sheet in anticipation of the growth opportunities ahead.
Shares in Marks and Spencer Group have increased by over 60% since the beginning of August 2021. Today, the stock was trading 15.49% at 224.5p following its half-year results.
While sales from M&S’s clothing and home business were down 1% over the period, online sales grew by 61% over the period, helping offset a near 18% decline in high street sales.
Financially, its objectives over the next three years remain; ‘progressive growth in sales, market share and profit in Food, Clothing & Home online sales to exceed 40% of total sales, and delivering an overall Clothing & Home profit margin in excess of 2019/20 levels,’ it noted.
M&S said trading for the first four weeks of the 2H has remained consistent with growth rates reported in 2Q and ahead of plan. In the near term it expects the strong demand relating both to the bounce back and improved customer perception to be sustained in the second half.
However, the Group also warned investors that cost incline could become steeper in 2H and steeper again in the 2022/23 year as a result of supply chain pressure, combined with pandemic supply interruptions, rising labour costs, EU border challenges and tax increases.
Commenting on today’s set of results, Steve Rowe added: “Given the history of M&S we’ve been clear that we won’t overclaim our progress. Unpacking the numbers isn’t a linear exercise and we’ve called out the Covid bounce back tailwinds, as well as the headwinds from the pandemic, supply chain and Brexit, some of which will continue into next year.”
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