Marks & Spencer warns of tougher trading ahead as half-year profits dive

The retailer reported a 23.7 per cent fall in underlying pre-tax profits to £205.5m in the six months to October 1 as it saw double-digit inflation in food costs, as well as more difficult trading in its Ocado retail joint venture.

Profits were also knocked by the cost of higher property taxes after the end of business rates relief, as well as its exit from Russia.

M&S said like-for-like sales jumped 13.7 per cent across its resurgent clothing and home division as its bounce-back gathers pace, while comparable sales lifted 3 per cent across its food business.

But underlying earnings in the food division slumped to £71.8m from £124m a year earlier as it said it chose not to pass it on an 11 per cent cost increase in full to customers.

The group warned of “more challenging” trading ahead in the cost of living crisis and said it is looking to make savings of around £150m in 2023-24 to offset soaring inflation and help it weather the storm.

M&S said it expects to post full-year pre-tax profits “similar” to the guidance it set out previously, with most analysts expecting a fall in underlying profits to £397m against £523m in 2021-22.

This strips out the impact of business rates relief ending, Russia, and Ocado Retail, which is now expected to record a loss, according to M&S.

Chief executive Stuart Machin said: “Trading in the first half has been robust, with both businesses growing ahead of the market, reflecting the beginnings of a reshaped M&S.

“This progress means we face into the current market headwinds with an increased resilience and level of confidence.”

He added: “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.”

The company said trading in the first four weeks of its second half was in line with its forecasts, with sales up 4.2 per cent in clothing and home, 3 per cent higher for food and 4.1 per cent ahead in its international business.

M&S recently said it is speeding up a major shake-up of its stores estate, which will result in the closure of 67 larger shops as part of long-term plans to axe 110 stores under a sweeping overhaul led by previous boss Steve Rowe.

Richard Hunter, Head of Markets at interactive investor, commented: “The pace of transformation at M&S continues to accelerate and is feeding through to some notable progress.

“For once, it is not the food business, but the revitalised Clothing & Home unit which is showing the greatest signs of promise. Previously seen as a dowdy and limited shopping experience, M&S has invested heavily in changing perceptions of style, while also adding an increasingly strong online alternative to the offering. Indeed, the M&S app now has four million users and accounts for 32 per cent of overall C&H sales.”