Marks and Spencer Group (LON:MKS) said first-half profit before tax more than doubled from the prior year as the retailer recovered from a cyber incident and delivered growth in its Food and Fashion, Home & Beauty operations.
Chief Executive Stuart Machin said profit before tax totaled GBP 403.2 million, which he described as the company’s second-highest first-half figure in 15 years. The retailer ended the period with what Machin called a strong balance sheet and said it remained on track to deliver full-year adjusted profit before tax in line with current market expectations.
“This was an important period as we bounced back from last year’s cyber incident,” Machin said, adding that the company served a record number of customers during the half.
Food growth and investment in value
M&S Food sales rose 13.9%, while adjusted operating profit reached GBP 288.6 million, representing a 5.6% margin. Machin said the business delivered double-digit volume growth in what he characterized as a flat grocery market, with market share reaching 4.3%, or 4.8% including Ocado.
The company invested GBP 50 million during the half to reduce prices on key family products and expanded its Remarksable Value range to more than 300 products. It also upgraded 400 products and introduced more than 850 new food products, according to Machin.
Management said customers were increasingly using M&S for larger grocery purchases. Chief Financial Officer Alison Dolan said baskets worth more than GBP 30 rose about 35%, compared with an 18% increase in baskets below GBP 30. Average basket size remained about GBP 16 across six items, leaving “a way to go,” she said.
Machin said M&S would retain flexibility to invest in value and quality as consumer concerns over costs persist. He said the company expects Food margins to remain roughly around the first-half level, despite continued cost pressures including business rates, which he said rose GBP 10 million following the U.K. budget.
Fashion sales recover, but margins remain under pressure
Fashion, Home & Beauty sales increased 17.5% as the business recovered from disruption in the previous year. However, Machin said that excluding furniture, sales were flat compared with two years earlier. M&S retained its position as the U.K.’s largest fashion retailer by market share, with share reaching 11.2%, its highest level since December 2013.
The division’s operating margin was 7.5%, below the roughly 10% target cited by management and down from 12% two years earlier. Machin said 83% of sales were made at full price, though he cautioned that the wider market remained heavily discounted.
Management attributed the margin pressure to labor and raw-material costs, stock write-offs and loss, value investments, higher fulfillment expenses, technology spending and marketing. Dolan said store margin was about 8.4%, compared with an online margin of about 6%, as online operations faced higher processing, returns, logistics and brand-mix costs.
The retailer said availability was affected by manual ordering following last year’s disruption, resulting in some products selling out too quickly and sizing issues. Machin said availability had since improved and was ahead of two years ago across Fashion, Home & Beauty. He also said October trading had been encouraging, supported by better availability, core product ranges and colder weather.
Online participation in Fashion, Home & Beauty reached 35%, toward M&S’s ambition of 50%. The company said it captured 10% of the online fashion market for the first time. Management expects margin improvement in the second half as first-half marketing costs do not recur, though it said the ongoing shift to online would continue to carry higher logistics costs.
Store, supply-chain and technology program continues
M&S expects to reinvest GBP 750 million this year across stores, supply chain and digital technology. The company opened a new Food distribution center in Avonmouth and said construction of its largest-ever Food distribution center, in Daventry, remained on track. Avonmouth has added about 30% more capacity, according to Machin, while Daventry is intended to support the company’s longer-term growth plans and reduce the cost to serve.
The retailer completed 18 store investments in the first half, including 12 new or extended Food stores and five renewals. Only 41% of its stores are in the new or renewed format, management said. New Food locations and Homebase conversions have exceeded expectations, with the Poole conversion trading 35% above its business case and Godalming 20% ahead.
In Fashion, Home & Beauty, M&S is opening a returns hub in Sheffield and plans to bring its Lichfield online distribution center into operation in January before full automation by summer. Machin said the facilities should improve delivery and click-and-collect service, reduce split parcels and lower returns costs. Castle Donington will remain part of the network and continue to support click-and-collect operations.
The company also said it was relaunching its Sparks loyalty program, deploying Microsoft Copilot to 11,000 colleagues and removing more than 100 legacy technology applications. Machin said M&S was undertaking a wider SAP decoupling as part of efforts to modernize its technology infrastructure.
Internationally, M&S announced plans with partner AFG to open five large-format Food stores in the United Arab Emirates over the next year. Meanwhile, Ocado Retail returned to profit, with sales up 20.6% and M&S Food sales on the platform rising 23%, according to the company.
About Marks and Spencer Group (LON:MKS)
M&S has a heritage of quality, innovation and value for money and has been voted the UK’s most trusted brand. From these foundations, M&S is reshaping for sustainable profitable growth and value creation.
We operate as a family of businesses, selling high-quality, great-value, own-brand products and services, alongside a carefully selected range of third-party brands. We do this through a network of stores and websites globally, and together, across our stores, support centres, warehouses and supply chain, our 65,000 colleagues serve over 30 million customers each year.
