GlobalData: M&S Turnaround Strategy Shows Promise

• M&S turnaround strategy shows promise with strong end-of-year results, non-food categories stand out as triumph, says GlobalData

The recent release of end-of-year results has brought encouraging news for British retailer Marks and Spencer (M&S), showcasing the potential success of its comprehensive turnaround strategy despite the presence of challenging external headwinds. Against the backdrop of historic inflation levels that have fueled strong like-for-like sales among food retailers, it is the performance of M&S’s non-food categories that stand out as a true triumph, says GlobalData, a leading data and analytics company.

Recognising that traditional full-line store formats may not always measure up to competitors, M&S has undertaken a bold and accelerated initiative to revitalize and transform its stores into sought-after destinations. With the aim of catering to customers who seek value, quality, and an elevated shopping experience beyond that of other high-street retailers. M&S’s investment in omnichannel fulfilment and evolving clothing & home ranges alongside third-party brand partnerships will stand M&S in good stead to retain growth in non-food for FY2024.

Eleanor Simpson-Gould, Senior Retail Analyst at GlobalData, comments: “Whilst broadening choice through the inclusion of third party brands is a positive step, M&S must maintain investment in existing ranges to distinguish from competitors John Lewis and Next.”

“As M&S focuses on ramping up omnichannel integration into stores, care must be taken not to alienate customers who prefer human interaction at the checkout.”

As M&S evolves its stores with omnichannel and tech-driven capabilities to cater to a broader customer demographic, M&S must take care to ensure store revamps do not alienate a core customer base valuing face-to-face interaction. While embracing technology is essential, it is crucial to address the needs of in-store shoppers who prefer human touchpoints. Ensuring availability of self-checkouts and manned tills at all times is a simple and effective way to cater to all customers.

Simpson-Gould concludes: “M&S’s confidence in its strategy for building sustainable growth looks set to last as the retailer confirmed the return of shareholder dividends in 2023. For the coming year, all eyes will be on M&S to prove this new strategy is a sustained recipe for growth.”

M&S Results:

• Profit before tax & adjusting items of £482.0m (2021/22: £522.9m, including £59.8m UK business rates relief)
• Statutory profit before tax of £475.7m (2021/22: £391.7m)
• Clothing & Home sales(1) up 11.5% to £3.72bn; Store sales up 14.9%, online up 4.8%; Strong growth in Click & Collect
• Clothing & Home adjusted operating profit £323.8m (2021/22: £330.7m, including £35.2m rates relief)
• Food sales up 8.7% to £7.22bn. Strong growth across core categories, hospitality and franchise
• Food adjusted operating profit £248.0m (2021/22: £277.8m, including £24.6m rates relief)
• Ocado Retail share of loss £29.5m (2021/22: share of profit £13.9m); capacity for future growth
• International constant currency sales up 11.2%; adjusted operating profit £84.8m (2021/22: £73.6m) 

Reshaping M&S to deliver long term growth

• Clothing & Home delivering improved style perceptions and a sustained leading value position
• Food volume outperforms market; reflecting product innovation and value investment
• Ocado Retail reset underway; restoring leading service credentials and deeper collaboration with M&S
• Structural cost reduction programme delivering; over £150m of savings planned for FY24
• Accelerating store rotation; 8 full-line and 10 Food stores opening in FY24
• Progress on supply chain modernisation; Gist acquisition completed, integration on track
• Robust balance sheet and cashflow; maintained investment grade metrics; further bond repurchase announced
• Plan to restore dividend in FY24 

Stuart Machin, Chief Executive said: "One year in, our strategy to reshape M&S for growth has driven sustained trading momentum, with both businesses continuing to grow sales and market share. Our Food and Clothing & Home businesses invested in value to protect customers from the full force of inflation which, whilst impacting margin, was the right thing to do, as serving our customers well is the only route to delivering for our shareholders.

Food outperformed the market, with customer perception for quality and value the highest in six years. The benefits of the Gist acquisition and operational efficiencies also supported an improved performance in the second half. Clothing & Home retained market-leading value perception, and its style credentials continue to improve. Sales were up in store and online, supported by growth in Click and Collect sales, active App users and Sparks loyalty membership; demonstrating the emerging power of our omni-channel model. The store rotation and renewal programme delivered strong sales uplifts and will accelerate this year, including the opening of five brand defining full-line stores in major cities. Our disciplined approach to capital allocation means we can invest for growth, while further reducing net debt and maintaining investment grade credit metrics, and we plan to resume dividend payments at our interim results.

M&S is such a special business with so much potential, and I want to thank all of my colleagues for their contribution to these results. Delivering performance and driving change is everyone’s responsibility at M&S, and they have done a remarkable job. Despite facing significant headwinds, I am encouraged by the strong foundations established last year and excited about what we can achieve in the year ahead."

Source : GlobalData and Marks & Spencer

For all the very latest news and intelligence on the UK's largest home improvement and garden retailers, sign up for the Insight DIY weekly newsletter.