M&S smashes profit expectations on the back of strong food sales

Marks & Spencer has smashed profit expectations, with the retailer’s food department returning stellar results that sent its shares to fresh nine-year highs.

The company’s half-year profits rose 17.2% to £407.8 million, it told investors this morning, well ahead of the £359 million analysts were forecasting.

The rise marks a significant turnaround for M&S, which returned to the FTSE 100 index of Britain's biggest listed companies for the first time in four years in August last year after a sharp increase in its share price. M&S was one of the FTSE 100’s founding members.

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Despite the profit jump, M&S chief executive Stuart Machin said there was still more to be done: “The easy thing to do today would simply be to say that these are good results, but that wouldn’t be the right thing to do.

“In the spirit of being positively dissatisfied, we have so much to do over this year and beyond. Despite our strong trading momentum, there is much more opportunity for future growth and that energises us.”

Food revenue rose 8.1% and adjusted operating profit for the division increased by more than a third.

Machin added: “Over 1,000 food products are being upgraded and 1,400 new lines are being launched across the year, putting us even further ahead of the pack on quality credentials, and value perception is the highest it’s been in a decade.”

What is behind the M&S turnaround?

Some of the recent improvement is down to factors beyond M&S’s control. Like other retailers, it initially benefited from the end of the pandemic and the return of consumers to the high street.

Problems with rival Waitrose have also led some shoppers to switch to M&S for food. Meanwhile, the recent cost-of-living crisis has seen many clothes buyers focus on affordable quality at the expense of high fashion.

However, it is hard to dispute that M&S deserves credit for embracing online sales, which now account for nearly a third of revenue. The company has also cut costs by boosting efficiencies, especially in logistics. It has closed down tired and poorly performing stores in favour of newer, more modern stores in better locations.

Just two years into a long-term reorganisation, the potential gains are far from exhausted. At the same time, the closure of several well-known rival brands on the high street, as well as the continued expansion of its online businesses, should also help.

Overall, M&S has seen sales grow by half over the past three years, with its profits expanding significantly during the same period. Sales are expected to keep growing over the next few years.

Another sign that it has turned the corner is the decision at the end of last year to resume paying the dividend that it stopped during the pandemic.