Marks & Spencer Posts Strong Half-Year Results

Marks and Spencer Group Plc has published half year results for the 26 weeks ended 28 September 2024.

Strong first half results, building on performance of last year

• Profit before tax and adjusting items up 17.2% at £407.8m (2023/24: £348.1m)
  
  
• Statutory profit before tax of £391.9m (2023/24: £325.6m)
  
  
• Food sales up 8.1%; adjusted operating profit £213.1m (2023/24: £158.4m) and margin of 5.1%
  
  
• Clothing & Home sales up 4.7%; adjusted operating profit £242.2m (2023/24: £240.9m) and margin of 12.0%
  
  
• Ocado Retail JV share of adjusted loss £16.0m (2023/24: £23.4m adjusted loss)
  
  
• International constant currency sales down 10.3%; adjusted operating profit £15.2m (2023/24: £32.4m)
  
  
• Adjusted return on capital employed increased to 15.0% (2023/24:13.2%)

Consistent execution

• Food volume and value share growth for four years running. H1 growth driven by produce, meat and dairy and a strong programme of innovation. Strongest value perception in over a decade.
  
  
• Consecutive monthly market share growth in Clothing for four years. H1 growth driven by Womenswear. Full price sales mix broadly level with last year. Style perception continuing to improve.
  
  
• New UK stores and renewals trading ahead of forecast. Increasing site acquisition to accelerate store rotation.
  
  
• Digital investment to improve product planning and the online experience in Clothing & Home and forecasting, ordering and allocation in Food.
  
  
• Structural cost reductions on track, with c.£60m saved in the period, largely offsetting cost inflation.
  
  
• Building on benefits of Gist integration, focus now turns to investing in the network and increasing capacity.
  
  
• International reset underway under new leadership team.
  
  
• Strong financial position, with investment grade credit metrics reinforced. £190.3m bonds repurchase complete.

1. Adjusted measures for 30^th September 2023 have been restated due to net pension finance income being reclassified as an adjusting item (H1 2023/24 £12.1m).

2. References to 'sales' throughout this announcement are statutory revenue plus the gross value of consignment sales ex. VAT.

Stuart Machin, Chief Executive said:

"Executing our strategy to 'Reshape M&S for Growth' has again delivered an increase in customers, sales value and volume, market share, profit and returns. Both Food and Clothing have now delivered market share growth for four consecutive years.

Central to our strategy is our vision to be the most trusted retailer, with quality products at the heart of everything we do. This is not something we take lightly, and our relentlessness in delivering customers the best quality, innovation, service and value only available at M&S underpins our trading momentum.

In Food, we have been resolute in our commitment to trusted value. Over 1,000 products are being upgraded and 1,400 new lines are being launched across the year, putting us even further ahead of the pack on quality credentials, and value perception is the highest it's been in a decade. Progress on being a 'shopping list retailer' has driven growth in larger baskets.

In Clothing, deeper buying into campaign lines and on-trend collaborations have driven yet another move on in style perception, with Womenswear and Menswear attracting new customers. Our authoritative lead on quality and value has supported strong full price sales in a promotional market.

The easy thing to do today would simply be to say that these are good results, but that wouldn't be the right thing to do. In the spirit of being positively dissatisfied, we have so much to do over this year and beyond. Despite our strong trading momentum, there is much more opportunity for future growth and that energises us.

With Clothing in growth and strong online performance, we are clear that now is the time to seize the opportunity in other categories including Home and Beauty. Across Clothing & Home online, we need to accelerate our transformation and reimagine our proposition. Under new leadership, we've now got a grip on our digital and technology infrastructure, as progress to date has been slower than we would have liked, so we must accelerate delivery. We are resetting priorities in International to drive future growth, as well as acting now to improve short-term performance. We have fresh impetus in our store rotation plan with the acquisition of ten major new sites in high quality, high growth locations, but we want to go faster so every store is a store we're proud of.

The business remains in robust financial health. We have improved our return on capital employed to 15% and further strengthened our balance sheet, giving us the capacity and flexibility to invest for growth and deliver structural cost reduction, demonstrating our ability to deliver value for shareholders.

The recent Budget's long-term impact on M&S, our suppliers, and our customers is for now uncertain. Meanwhile, we are confident and we remain on track and focused on what is in our control. We have the best Christmas food range I've seen in my time at M&S and the most stylish seasonal clothing offer yet, and we know customers are looking forward to celebrating Christmas with M&S.

I want to thank my colleagues for everything they have done and are about to do, and of course, all of our customers for shopping with us." 

RESHAPING FOR GROWTH

As M&S continues to invest in the early stages of 'Reshaping for Growth', the business has delivered improved sales and volume, profit and market share in both Food and Clothing & Home.

Our vision is to be the UK's most trusted retailer, with quality products at the heart of everything we do. We are making progress, with a strong programme of product innovation and improvements to perceptions of quality, value and style. There remains a long way to go in our reshaping programme and clear opportunities exist for profitable growth to achieve the objective of a one percent increase in Food and Clothing & Home market share by FY28.

Our store rotation programme is picking up pace. New and renewed stores are trading well, with relocations of Full Line stores more productive and renewal stores able to offer a full M&S Food range. We are accelerating store acquisition, securing 10 new locations in recent weeks. However, there is more to do to develop the store pipeline to achieve the objective of a focused productive group of 180 Full Line stores and 420 Food stores by FY28. Separately we are also progressing with the disposal of two warehouse properties.

Our online business made progress in the period, with double digit growth in Clothing & Home, and the exit of the bulky furniture category. It remains a critical objective to grow online participation from the current 1/3 mix of Clothing & Home sales and we are addressing issues in fulfilment and website performance which provides opportunities for growth.

The programme of cost reduction is on track, and we remain confident of achieving £500m of savings by FY28, across stores, the support centre and supply chain. In the period, we delivered our target operating margins of over 4% in Food and over 10% in Clothing & Home, but cost pressures remain strong with labour cost inflation running at 10% in the current year. Early-stage modernisation of the supply chains includes the roll out of a new forecasting and ordering system in Food, warehouse capacity investments and the multi-year development of a new planning platform in Clothing & Home. While structural cost savings have largely offset the impact of operating cost inflation in the current year, further investment in efficiency initiatives and automation will be needed.

Our plans depend on three critical enablers: Building a high-performance culture, transforming the digital experience and technology infrastructure, plus disciplined capital investment and allocation.

Creating a high-performance culture is critical to delivering the service customers expect of M&S. At the heart of this is a culture of positive dissatisfaction and 'always aiming higher' with a support centre that is closer to customers and front-line colleagues. Support centre colleagues now spend at least seven days each year working in store as part of performance objectives. M&S' People Director ran all aspects of a store for three months during the period, taking accountability to improve and resolve the issues found. We aim to promote at least 50% of leadership internally with the expectation that promoted colleagues spend at least one month working in customer-facing roles.

M&S plans to upgrade legacy systems and invest to support omni-channel sales. With the arrival our new Chief Technology Officer we have completed a comprehensive review of systems and are now embarking on a multi-year programme of investment. The business is currently operating complex, costly, legacy applications which need upgrading. Investment will also be made in the data engine and the Sparks loyalty programme to deliver a more personalised customer experience.

Our focus on operational cash flow generation combined with a disciplined approach to capital investment and allocation is key to the M&S transformation. This is delivering an improvement in return on capital employed and a strong balance sheet. We have declared an interim dividend of 1p per share being one third of last year's total dividend. The final dividend will be determined at year end, based on performance for the year.

OUTLOOK

During the first half of the year, cost inflation has continued to be elevated, running well ahead of price inflation and the consumer environment has been uncertain. Despite this, the business has traded well growing volume and value market share.

As we enter the second half, we expect this backdrop to persist. Nevertheless, 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. 

FOOD SUSTAINING VOLUME GROWTH AND COMPETITIVENESS

Food sales increased 8.1%, with like-for-like growth of 7.5% driven by UK volume growth of 6.5%. Volume growth has now outperformed the market for four years running. Market share was up 30bps to 3.7% for the 12 weeks to 29 September 2024. Adjusted operating profit margin increased to 5.1% from 4.1% last year, with structural cost reduction initiatives largely offsetting cost inflation. This enabled the benefits of volume growth to flow to improved profitability.

Investing in trusted value, innovation and improved choice

• Prices were 'dropped and locked' on key shopping list items such as fish, dairy and poultry, and seasonal fresh market specials were relaunched, driving sales of core lines.
  
  
• Quality upgrades included sandwiches, collection pizzas and desserts as part of a programme of over 1,000 lines this year, with partners investing in improved capabilities. Category transformations in confectionery, 'gastropub x Tom Kerridge' and Indian food delivered accelerated growth.
  
  
• The personal care range was upgraded and relaunched as part of the strategy to enable customers to do more of their shopping with M&S.
  
  
• Value perception reached its strongest position in over 10 years.

Source : Marks & Spencer PLC

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