Marks & Spencer Group Plc unexpectedly raised its outlook, predicting profit growth this fiscal year as the UK retailer gains market share in groceries, clothing and homeware.
(Bloomberg) — Marks & Spencer Group Plc unexpectedly raised its outlook, predicting profit growth this fiscal year as the UK retailer gains market share in groceries, clothing and homeware.
In a turnaround for a retailer that has long promised to reinvigorate the business and failed to deliver, M&S now expects to report a significant improvement in its interim results and profit growth for the full year. The shares rose more than 9% in early London trading.
The pickup in performance is across the board with like-for-like food sales growing 11% in the first 19 weeks of the financial year. Comparable sales in its clothing arm, sometimes derided for being unfashionable, grew more than 6% following strong sales in stores and fewer items sold at a discount.
Successive management teams have struggled to return the household brand to previous levels of profit, and Chief Executive Officer Stuart Machin’s measures now are starting to show results.
M&S is trying to broaden the appeal of its high-end grocery division by selling more staples and offering more affordable prices to encourage shoppers to use M&S for their full weekly shop rather than just occasional purchases. The retailer has also been closing some stores while opening food shops under a new format.
M&S food is gaining ground even as shoppers keep turning to discounters to save money during Britain’s cost-of-living crisis. Aldi’s sales growth exceeded 21% in the four weeks to Aug. 6, from a year earlier, while Lidl’s sales rose by almost 20%, according to market research firm Kantar.
Read More: UK Grocery Price Inflation Drops for Fifth Month to 12.7%
In clothing, M&S is focused on improving the range and selling more third-party labels. Chairman Archie Norman appointed Machin last year along with Katie Bickerstaffe as co-CEO with a focus on apparel. While sales are improving in stores, the company said online clothing transactions are more subdued.
In May, the company didn’t give specific profit guidance for the 2024 financial year. At the time Machin said the company was being conservative as it didn’t want to “over-promise and under-deliver.”
What Bloomberg Intelligence Says:
Marks & Spencer’s 11% food same-store-sales growth and a 6% clothing increase — largely at full price — over 19 1H weeks, demonstrates consumers’ desire to return to stores and the increased appeal of lower prices. Operating leverage led to 1H guidance of a significant profit increase, suggesting a jump of at least 13% in the very thin consensus pretax profit. Yet caution over consumer spending had restrained expectations for 2H, with at least a 7% upgrade to annual consensus pretax profit now likely.
M&S Tastier Food Driving More Profit as Shoppers Return: React
Charles Allen, BI retail analyst
“It is taking a long time for M&S to overcome understandable investment community doubt and scepticism when taking a look at the earnings profile over the years,” said Clive Black, an analyst at house broker Shore Capital. However, he added that the retailer was becoming more competent, capable and resilient suggesting there is a scope for sequential earnings growth.
Read More: M&S Surges as Long-Awaited Turnaround Finally Shows Results
M&S has been making progress with its food business, helped by improved perception of value for money, better ranges and an online presence through its joint venture with Ocado Group Plc, RBC analyst Richard Chamberlain wrote in a note to clients Tuesday. The offer in clothing has also improved, he wrote.
The move follows rival Next Plc raising its profit guidance earlier this month as consumers buy more clothing thanks to salary increases and warmer weather.
(Updates with Kantar figures in sixth paragraph and Bloomberg Intelligence comment)
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