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Marks & Spencer saw its first-half profit fall 24 percent, new figures released today show.
The shopkeeper reiterated that it expects full-year earnings to be lower than last year’s total, amid higher costs and pressure on household budgets.
M&S said it expects a “material contraction” in shoppers’ demand next year as consumers battle rising inflation.
Profit decline: Marks & Spencer saw its first half profit fall by 24%
The group also warned that more retailers will collapse in the next 12 months as many struggle with rising costs and declining customer demand.
It said: The combined effects of the tight cost of living and the most notable rise in the cost of doing business in many years are putting pressure on margins across the industry.
“This will lead to non-viable capacity leaving the industry, creating opportunities for the leaner players that remain.”
It said the industry was facing a “gathering storm,” which is expected to bring down more companies in the coming year. Shoppers’ disposable income falls during the highest inflation rate in 40 years.
Concers: M&S said it expects a ‘material contraction’ in shoppers’ demand next year
M&S shares are down 2.14 percent or 2.50p this morning to 114.55p, after falling more than 40 percent in the past year. No decision has yet been made on when dividends will resume, as they were last paid in 2019.
The retailer said it generated an adjusted pre-tax profit of £205.5 million in the six months to October 1, down from £269.4 million on the same point a year ago.
Profits were also affected by the exit from Russia and a loss at the online joint venture Ocado Retail. There was also no government Covid-related corporate rate cut.
But the group’s sales rose 8.5 percent to £5.54 billion in the period, amid price increases.
Stuart Machin, the retailer’s CEO, said: ‘In all M&S markets, conditions are very likely to become more challenging in the financial year 2024.
“While we are traditionally entering our strongest quarter, the company continues to do well.”
Over the past four weeks, trade was in line with forecasts, with clothing and home sales up 4.2 percent, food sales up 3 percent and international sales up 4.1 percent.
While food sales rose 5.6 percent in the first half, adjusted operating profit in the division fell 42 percent to £71.8 million
However, the group said its more affluent customer base, reduced debt pile and strong market hold in divisions such as school wear gave the company “room for greater resilience.”
John Moore, senior investment manager at RBC Brewin Dolphin, said: “M&S has seen a decline in earnings, but the effects of the economic downturn are not yet really visible in the company’s numbers.
Still, M&S has come out on top with its update, highlighting the array of self-help measures it’s taking.
“Getting to the fore on cost savings is helpful in addressing what will undoubtedly be a very difficult 18 months ahead, while the Gist acquisition is also forward-thinking and provides an element of control over supply chain costs – a big deal.” challenge for many retailers this year. Inevitably, caution is warranted for the remainder of 2022 and through 2023, but M&S has shown that it is prepared to change and take much-needed steps in the right direction.”
Richard Hunter, Head of Markets at Interactive Investor, said: “Despite all the progress, and even with the traditionally strongest last quarter in play, the outlook for next year is cloudy for reasons largely beyond the company’s control.
“The festive period and rarely-timed World Cup competition should give a boost for a shorter period of time, while M&S is committed to pointing out that a fair proportion of its customers are those with higher incomes and a higher age group.
Nevertheless, the deteriorating economic outlook has devastated retailers’ stock prices in general, and M&S is no exception, as shares have fallen more than 38 percent in the past year, compared to a 20 percent drop for the broader FTSE250.
“Despite an increasingly attractive valuation historically, the tide has not yet turned in the company’s favour, with market consensus stalling for the time being.”
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