While M&S has not always been a top stock for investors, its latest profit spike suggest it could be making a comeback.
Profits at Marks & Spencer have surged almost 60% but the retailer says it will continue to cut costs in order to “reshape” the company.
The group said underlying pre-tax profits had jumped to £716.4m for the year to March 30, with food sales rising by 13% over the same period. The company added that it ended the year in “the strongest financial health since 1997”.
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The profit rise comes after Marks & Spencer 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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The company’s share price rose to a six-year high on the back of Wednesday’s results. Stuart Machin, chief executive of M&S, said: “We are becoming more relevant, to more people, more of the time.”
He added that two years into its plan to “reshape for growth” the company had seen the beginnings of a new M&S. “Food and clothing and home grew volume and value share ahead of the market, and sales increased across stores and online. Both businesses have now delivered 12 consecutive quarters of sales growth and this trading momentum gives us wind in our sails, and confidence that our plan is working,” Machin said.
M&S on a cost-cutting drive
The retailer said it was also raising its cost-cutting target by another £100m to £500m by 2027-28 as it looks to offset rising staff wages. "With continuing cost headwinds, notably from investment in colleague pay, the structural cost programme is critical to our profit progression," the company said.
M&S has come a long way from the depths of the pandemic, when it cut its coveted dividend and had to renegotiate its overdraft facility with banks to give it more breathing space. In some respects, the pandemic was a wake-up call. While M&S had to close its larger stores selling so-called non-essentials, such as clothing and homewares, it was allowed to keep its food halls open to the public. Meanwhile, sales of non-essentials online boomed.
It has doubled down on its higher-end food offering, betting that consumers will pay extra for high-quality food while also investing in its clothing. Rather than taking its market share for granted or flailing about trying to capture part of the next big trend, it has reinforced its market share in areas in which it is well established, such as food, clothing and physical stores.
The strategy is certainly paying off. Despite all the talk of economic hardship, recession and a cost-of-living crisis, 22 December 2023 was the firm's best pre-Christmas food shopping day in its 140-year history.
In its results published on Wednesday morning the group added that profitability at its Ocado Retail joint venture was "well below” the expectations of the original business plan but that it was working closely with Ocado to "reset the business".
Machin said: “It has been a good year, and I would like to thank all of our colleagues for their hard work and commitment. However, there remains much work to do and that’s a good thing as every challenge is an opportunity for growth.”
