M&S back on track after weathering storm of cyber-attack: Richard Hunter

The threat to the business was never existential, but nonetheless had a significant impact on sales.

It remains to be seen how much of the business lost during the disruption will be recovered, not least in a Fashion, Home and Beauty unit which accounts for 22 per cent of group revenues. The online outage has left a mark on the group’s reputation as well as inflicting some material damage. Adjusting items for the period of £292.1 million included £131.3 million related solely to the attack, although M&S was able to recoup £100 million in its insurance claim.

That being said, there is little doubting the ongoing resilience and strength of the food business, which accounts for 56 per cent of group revenues. Sales increased by 7 per cent to £9.7 billion over the year, reaching a new milestone market share for the group along the way, and where innovation and quality upgrades continue to propel performance.

Even so, wastage and loss during the disruption due to manual rather than automated stock allocation was a contributing factor to an adjusted operating profit which fell by 9.6 per cent to £444.5 million.

However, prospects remain bright for the unit, which is a clear focus of the group’s push for growth in terms of new stores and general investment. Indeed, quite apart from the enduring appeal of its specialist food ranges, the nature of these revamped stores has led to a noticeable increase in customers choosing M&S for their full shop, while the impending festive season is one where M&S traditionally prevails. The group now plans to have 380 food stores by 2027/2028.

Fashion, Home & Beauty was the most affected by the outage. Sales declined by 7.7 per cent overall to £3.9 billion, including declines in store due to the lack of the Click & Collect option and of course online. Adjusted operating profit of £213.4 million was 55 per cent lower than the previous year and stopped most of the unit’s recent progress in its tracks.

More positively, the group noted that its new season sales were showing some strong signs of resonating with shoppers, playing into its new target market of the “modern mainstream customer” as the company attempts to throw off the shackles of a previously dowdy and tired image, including but not limited to both women’s and men’s categories.

The outlook is cautiously optimistic as the group continues to recover momentum after a stronger second half, although M&S noted that the coming year will likely see increased fuel, freight and input costs. Even so, cost savings and rationalisation should mitigate most of these headwinds and a resumption of profit growth is anticipated.

Given the debilitating impact of the cyber outage, the shares have inevitably struggled, losing 9.5 per cent over the last year as compared to a gain of 17.7 per cent for the wider FTSE100. Viewed through a longer-term prism, however, the direction of travel remains clear. The shares have gained 102% over the last three years and the group expects to be back on track imminently. As such, the market consensus of the shares as a buy reflects confidence that M&S can now resume its quest in search of former glories.

Richard Hunter is head of markets for interactive investor