Demand for jeans, jogging bottoms and workwear have helped Marks & Spencer to a long-awaited turnaround of its clothing business that helped the group forecast profits of £500m for the full year.
Shares in the high street retailer rose more than 20% at one point on Wednesday morning on the back of the results, which showed the group swinging to a pre-tax profit of £187m for the six months to October, compared with a loss of almost £88m during the same period in 2020.
The figure also blew past pre-pandemic profits of £159m, and its chief executive, Steve Rowe, said it was “clear that underlying performance is improving”.
M&S said its strong performance reflected a 10% jump in food sales as well as “substantial improvement” across its once-struggling clothing and homeware business.
It said a “re-engineering” of the division, which has included paring down its offering to a more focused range of items and reducing promotions, was “now demonstrating its potential to reverse years of decline”.
The company’s clothing business has been struggling since before the coronavirus pandemic, with sales falling for eight years. It faced additional challenges at the start of the outbreak when non-essential retailers were forced to close their high street shops to customers during lockdown.
The retailer said it had sold more than 2m pairs of women’s jeans in the six months to October, and recorded a 50% jump in sales across its Goodmove activewear brand after an advertising campaign featuring the British 1,500-metre champion Revée Walcott Nolan. Formalwear also made gains as customers returned to the office, helping suit sales increase 3%.
Overall, sales from the revamped clothing and home business were down 1% over the six months to October, although online sales continued to grow, rising 61% over the period. It helped offset a near 18% decline in high street sales.
However, the revamp has helped Marks & Spencer raise its profits outlook for the second time in less than three months.
The group expects full-year underlying profits to beat expectations, now guiding for about £500m compared with £403m in 2020. M&S had already upgraded its guidance in August to above £350m – the first upwards calibration of its profits outlook this century.
Rowe also credited the overall performance to a “Covid bounceback” but warned that the retailer was still facing headwinds, including from Brexit and the pandemic, that could continue into next year.
“Well-publicised supply chain pressure, combined with pandemic supply interruptions, rising labour costs, EU border challenges and tax increases means the cost incline becomes steeper in the second half and steeper again in the 2022-23 year,” he said. “That will increase the importance of our productivity plans, store rotation and technology investment.”
M&S said some of these higher costs would be passed on to shoppers, with price increases expected to pick up pace. But Rowe said rises so far had been less than half the 2.1% inflation seen in the wider UK grocery market. “Our inflation will be in line with the market or less than the market,” he said.
The retailer is increasing pay to attract and retain workers, “which will put pressure on costs in the remainder of our financial year”.
Despite supply chain difficulties, Rowe said shoppers would not be faced with big gaps in its ranges in the run-up to Christmas, although slippers were in short supply.
Last week, M&S had sold out of more than 40% of its online festive season food-ordering range – including the biggest turkeys, puddings and its brussels sprout gratin, as shoppers tried to get a head start on holiday shopping. However, it said it expected fresh deliveries to arrive throughout November and December.
