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M&S rebound continues as profits leap

 (PA Wire)
(PA Wire)

Marks & Spencer continued its return to form today posting its best profits in a decade and promising investors more good news to come.

The one-time bellwether of the high street had fallen into disarray, with dowdy clothes and expensive food seeing it lose ground to Next, Waitrose and others.

Today it reported a 58% jump in annual profits to £716 million.

It is paying a dividend of 3p a share, the first shareholder hand out since 2019.

The shares jumped 9%, 24p, to 298p which leaves the business valued at £6 billion.

City analysts are now talking of future annual profits of £1 billion

Only two chief executives in the long history of Marks & Spencer have delivered annual profits of more than £1 billion: Sir Richard Greenbury in 1997, and Sir Stuart Rose, now Lord Rose, a decade later.

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Chief executive Stuart Machin said: “Two years into our plan to Reshape for Growth we can see the beginnings of a new M&S. Food and Clothing & Home grew volume and value share ahead of the market and sales increased across stores and online. Both businesses have now delivered 12 consecutive quarters of sales growth and this trading momentum gives us wind in our sails, and confidence that our plan is working. We are becoming more relevant, to more people, more of the time.”

The food arm has won many new fans but questions remain about the clothes, still regarded as dowdy in some quarters..

M&S’s link-up with Ocado remains problematic. “Profitability is well below original expectations and there is considerable scope to leverage our combined capabilities in sourcing and marketing, and to develop Ocado’s delivery service and online experience,” the group admits.

Zoe Gillespie, investment manager at RBC Brewin Dolphin, said: “The turnaround of M&S has been remarkable. The retailer is delivering strong growth, with profits well ahead of last year, a much stronger balance sheet, and good cashflow. With such a solid set of foundations, M&S has restored its dividend – which is good news for shareholders and indicative of the management team’s confidence.”

Julie Palmer, partner at Begbies Traynor, said: “High-street veteran M&S has posted a glittering set of results against a particularly challenging backdrop as it continues to demonstrate the success of its turnaround strategy. The retail giant’s emphasis on quality, coupled with delivering value for its customers, has clearly resonated well with consumers who are still willing to pay a premium for their upmarket offering.”

She added: “In the current environment where other grocers are fighting to maintain their market share, M&S looks well placed to overtake its middle-class rival Waitrose in due course, something many felt would be impossible not that long ago.”

The next stage of M&S’s revival includes quite tough cost cuts of £500 million over five years. That suggests job cuts possible or even likely.

The food arm has benefitted from high restaurant prices, with more and more customers choosing to treat themselves at home rather than eat out.

M&S’s share of losses at Ocado Retail widened to £37.3 million from £29.5 million. M&S repeated that it did not expect to have to pay a final instalment for its share in the business which was once expected to be £191 million.

Charlie Huggins, Manager of the Quality Shares Portfolio at Wealth Club, said:

"M&S has had an excellent year and there is now enough evidence to suggest this isn't a flash in the pan. The most impressive thing about the M&S turnaround story so far has been the market share gains, in both Clothing and Food. They have been able to achieve this while reducing discounts, which is a good sign. In other words, they aren’t just slashing prices in the hope of getting quick sales growth. They have been focused on reinvigorating branding and designs, which ought to be more sustainable.”