M&S profits jump but it says cost of living crisis will dent sales

Marks & Spencer is ramping up plans to relocate some of its town centre stores, which have ‘lost impetus as a result of failed local authority or government policy’.

The retailer plans to largely focus relocating certain stores from the centre to the edge of towns, as well reducing in-store space dedicated to clothing and homeware.

Revelations about the group’s store plans emerged as the retailer posted a £552.9million profit for the year to 2 April, representing a 29.7 per cent increase on the previous year and meeting analyst forecasts. 

But M&S expects sales growth to ease in the coming months due to rising costs and increased pressure on customer budgets. 

New focus: M&S said some town centres store sites had ‘lost impetus’ due to ‘failed’ local authority or government policy 

The group said: ‘The full-line store pipeline already has around 15 new stores planned over the next three years, including seven former Debenhams sites, and we expect this to build further. This will help enable a further 32 store closures.’

‘We are now developing a growing pipeline of store relocations, moving from old multi-floor buildings, often with challenged fabric and poor access and car parking, to modern, well-located sites wherever possible in the renewal format with omni-channel capability.’ 

Clothing and homeware sales grew 3.8 per cent in the last financial year, while the retailer’s online sales increased by 55.6 per cent. In-store sales slipped 11.2 per cent and food sales jumped over 10 per cent. 

For its current financial year, M&S also warned it did not expect to progress from a profit base lowered by a lack of business rates relief and profit from Russia. 

M&S said it was facing higher food costs, driven by global supply issues and labour shortages, while factory, transport and freight costs, as well as continued supply issues in China, were putting pressure on its clothing and home arms. 

Household budgets are being squeezed by rising food, energy and fuel bills, with inflation reaching 9 per cent in April, marking the highest level for 40 years.

Supply chain issues, the war in Ukraine and rising raw material costs are all pushing up the cost of living.

M&S revealed it will fully exit Russia following the country’s invasion of Ukraine. 

The retail giant’s Russian arm, which is run by Turkish franchisees, operates 48 shops and has 1,200 employees.

In March, the company stopped shipments to the stores but has now said it will ‘fully exit our Russian franchise’ and face a £31million cost hit as a result.

Outgoing: M&S boss Steve Rowe is stepping down from the retailer

Outgoing: M&S boss Steve Rowe is stepping down from the retailer

Steve Rowe, the outgoing chief executive of M&S, said: ‘When I took over the reins at M&S six years ago, I committed to tackling the underlying issues that had eroded the strength of the business and building the foundations for future growth. 

‘For me, what is important about these results is not just the restoration of profit and strong cash flow; it is that they demonstrate that M&S has fundamentally changed.

‘While there is much more to do, the business has moved beyond proving its relevance and has the opportunity for substantial future growth.’

Rowe, who has spoken out against an online sales tax, will hand over leadership of the chain to Stuart Machin and Katie Bickerstaffe on Wednesday after leading the retailer’s turnaround over the past six years.

Trading over the past six weeks has been ahead of levels from last year, driven by strong sales in its clothing and home operation.

The firm said: ‘While encouraging, we expect the impact of declining real incomes to sharpen in the second half and endure for at least the remainder of the financial year.’

Marks & Spencer shares fell this morning and were down 0.79 per cent or 1.05p to 131.20p in early morning trading. The shares have fallen over 15 per cent in the past year. 

Richard Hunter, head of markets at Interactive Investor, said: ‘For all the progress, the share price has been held back by any number of factors and given the outlook comments this could continue to be the case. 

‘Quite apart from the effects of declining real incomes as inflation persists, M&S has highlighted some headwinds which will result in a lower profit base for the current year. 

‘These include further investment in Ocado retail capacity, the lack of any income from Russia following its withdrawal and the absence of any business rates relief. This is despite a strong first six weeks of the new financial year which has seen further growth in both the Food and Clothing and Home units.

‘The shares have risen by 55 per cent since pandemic lows, but stepping back from this rebound the picture is less positive. 

‘The shares remain down by 46 per cent over the last three years and have fallen by 16 per cent over the last year, which compares to a decline of 11.5 per cent for the wider FTSE 250. 

‘Market consensus for the shares remains cautious, with the general view of the shares as a hold leaving the jury out as the company continues its attempts to revitalise its fortunes.’

On the dividend front, the retailer said it would  consider the scale and timing of a resumption of payments at the year end. 

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