M&S revamp gathers traction with first-half profit

LONDON: British retailer Marks & Spencer forecast strong Christmas trading after reporting a better-than-expected 17% rise in first-half profit, adding to evidence its latest turnaround plan is working and sending its shares to an over eight-year high.

After over a decade of failed revival efforts, M&S under CEO Stuart Machin is reaping the rewards of a costly programme to improve the value and quality of its food and clothing, overhaul its store estate, upgrade its technology and e-commerce operations and modernise its supply chain.

Shares in M&S were up 6% on Wednesday, taking gains over the past year to 80%.

The group said it made profit before tax and adjusting items of 407.8 million pounds ($524.6 million) in the six months to Sept. 28 - ahead of analysts’ consensus forecast of 361 million pounds and the 348.1 million pounds made in the same period last year.

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Revenue rose 5.7% to 6.48 billion pounds, with food sales up 8.1% and clothing and homeware sales up 4.7% - both ahead of analysts’ forecasts.

“In the first five weeks of the second half overall trading remains on track and we are confident of making further progress in the remainder of the year,” M&S said.

Ian Lance, fund manager at Redwheel, one of M&S’s biggest investors, said the results further validated the strategy of the management team.

“We would note, however, that the performance of Ocado Retail and International could still be improved and hence we believe this story still has some way to go,” he said.

Machin said M&S’s own research had shown its customers expect to spend more this Christmas than last year. He noted more shoppers than last year had already pre-ordered food for the holiday season.

“I’m very confident that if we execute our plan we will have a really strong Christmas,” he told reporters.

Last week, rival Next raised its profit outlook after better-than-expected recent trading, while Primark said on Tuesday it expected good festive trading.

M&S did, however, caution that in the first half its cost inflation ran well ahead of overall inflation and the consumer environment was uncertain. It expects that backdrop to persist in the second half.

Machin said M&S would next year face a roughly 120 million pound headwind from tax increases and a rise in the national minimum wage introduced in the new Labour government’s recent budget.

He said M&S had planned for the wage increase and had a good track record of mitigating cost rises through efficiency savings. He said he could not rule out price increases but had no current plans to impose them.