Marks & Spencer raises profits outlook but warns over soaring costs

Marks & Spencer has increased its annual profits outlook for the second time in less than three months after a sales rebound, but warned over surging costs and disruption due to supply chain issues.

The retail giant saw underlying pre-tax profits jump to £269.4m in the six months to October 2 against losses of £17.4m a year earlier at the height of the pandemic, and up 52.8% on two years ago before Covid-19 struck.

The group said it expects full-year underlying profits to beat expectations, now guiding for around £500m – having already upgraded its guidance in late August to above £350m.

This comes despite warnings over “significant” supply chain cost rises over the second half, which it said will continue into the new financial year.

It said it is battling amid shortages for lorry drivers, warehouse and supplier staff, which is particularly affecting its Ocado Retail joint venture.

M&S said it is increasing pay to attract and retain workers, “which will put pressure on costs in the remainder of our financial year”.

But it said the food arm is “well placed” for the challenges.

It added that profits are still set to top expectations, with the trading rebound continuing into the second half so far.

“We expect the strong demand relating both to the bounceback and improved customer perception to be sustained in the near term,” the group said.

The firm has been buoyed by pent-up consumer demand since reopening its clothing and home stores following lockdown measures, but it also cheered signs that its turnaround plan is also starting to pay off.

Chief executive Steve Rowe said the “hard yards of driving long-term change are beginning to be borne out in our performance”.

“Given the history of M&S we’ve been clear that we won’t overclaim our progress,” he said.

“Unpacking the numbers isn’t a linear exercise and we’ve called out the Covid bounceback tailwinds, as well as the headwinds from the pandemic, supply chain and Brexit, some of which will continue into next year.

“But, thanks to the hard work of our colleagues, it is clear that underlying performance is improving.”

Its first-half earnings boost came after sales rebounded by 10.4% on a two-year basis in the food business, while clothing and home sales fell 1%, but lifted in the second quarter.

Full-price clothing and home sales also leapt 17.3% higher after M&S made its ranges more focused, reducing promotions and selling a substantially smaller summer range as part of its strategy shake-up.