M & S Make Significant Profits

May 18, 2024

Marks & Spencer (M&S) is expected to announce a significant increase in annual profits on Wednesday, following a successful year. The high street retailer has experienced strong sales in both its food clothing and home divisions, thanks to a substantial turnaround strategy involving cost-cutting and store closures.

The company has reinstated its dividend payout in 2023 after a four-year hiatus and rejoined the FTSE 100 Index. Analysts anticipate a 35% rise in underlying pre-tax profits to £653 million for the year ending April, with revenues up by 8.9%, as per AJ Bell.

Guy Lawson-Johns, an equity analyst at Hargreaves Lansdown, highlighted the company’s success in growing market share and margins while undertaking a significant cost-cutting program. M&S, along with Lidl and Ocado (in which M&S holds a 50% stake), has been recognized as one of Britain’s fastest-growing grocers over the last quarter. However, the retail sector remains challenging, with wage inflation and business rates posing difficulties to the cost-cutting efforts.

Danni Hewson, head of financial analysis at AJ Bell, noted that the latter half of the year might have been quieter for M&S, with attention now turning to the outlook for the current year. Despite potential challenges such as ongoing investments, variable weather, persistent interest rates, and an uncertain economic environment, M&S seems to be progressing well. Higher consumer spending due to increased wages and improved clothing ranges have contributed positively to the company’s performance.

Looking ahead, guidance for the year to March 2025 is crucial, with consensus estimates predicting an 8% increase in underlying pre-tax profit to £705 million and like-for-like sales growth of around 2%, supported by a continued £400 million cost savings program.

M&S’s joint venture with Ocado will also be under scrutiny. Earlier this year, it was disclosed that Ocado might take legal action against M&S over the final instalment of £190.7 million from their £750 million 50-50 Ocado Retail partnership, launched in 2019. Ocado Group’s CEO, Tim Steiner, mentioned the likelihood of reaching a negotiated settlement regarding the payment.

M&S has the option this financial year to consolidate Ocado Retail’s numbers into its accounts, which could impact the group’s profits given Ocado Retail’s ongoing losses.