M&S shares surge after retailer says ‘encouraging’ sales show turnaround is working

Business

Shares in Marks & Spencer have surged after it bumped up its profit outlook following “encouraging” sales – but admitted stores are still struggling to recover after lockdowns.

The retailer pointed to clothing and home sales – increasingly made online – bouncing back to just below pre-pandemic levels as well as a big boost to food revenues as evidence that its turnaround plan was working.

M&S said the trading performance was likely to reflect pent-up demand and cautioned that “substantial uncertainty” over consumer demand remained while supply chain disruption was putting pressure on costs.

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Cuts announced at M&S will not be the last

“However, assuming no further COVID-related restrictions on trading, at this early stage we expect adjusted profit before tax for the year to be above the upper end of previous guidance of £300-350m,” the retailer said.

Shares rose by as much as 12% following the unscheduled trading update for the 19 weeks to 14 August.

M&S said: “At the start of the year, continued restrictions across large parts of the M&S store portfolio meant that the trading outlook was highly uncertain.

More on Marks And Spencer

“Since then, M&S has seen an encouraging performance providing confirmation that the transformation programme is on track.”

The profits upgrade provided a rare shaft of optimism for the 137-year-old retailer’s shareholders after years of struggle to arrest its decline and a relegation in 2019 from the FTSE 100.

In its clothing and home division, M&S said it had seen a good recovery with revenue up 92.2% up on a year earlier and just 2.6% below pre-pandemic levels.

Chicken is displayed at an M&S food hall in northwest London July 8, 2014
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M&S said cost-cutting was helping to mitigate the impact of supply chain disruption in its food division

But there was a stark divide between the performance of stores – where sales were 19.8% lower than in 2019 reflecting the fact that “many locations remain in slow recovery from the pandemic” – and online – where they were 61.8% higher and now comprise 35% of all clothing and home revenues.

In May, M&S revealed that it was stepping up store closure plans as it reported a £201m pre-tax loss for the year to 27 March as a result of the pandemic.

The latest update showed food sales up by 10.8% on last year and 9.6% ahead of 2019.

M&S said cost-cutting was helping to mitigate the impact of supply chain disruption as well as increased staff absences – without saying whether this was down to self-isolation alerts.

International revenue was up 39.7% on last year and 5.2% down on pre-pandemic levels despite the impact of lockdowns in India and Brexit-related supply disruptions to Ireland and France – the latter an issue recently raised by chairman Archie Norman in a strongly-worded letter to the prime minister.

Earlier this week, M&S revealed that it has made its products available in over 150 countries for the first time via British Corner Shop, an online supermarket for expats.

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