Marks and Spencer profits beat expectations on strong food sales

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Marks and Spencer beat first-half profit expectations on strong food and clothing sales as its turnaround plan gathers pace, but it warned of uncertainty because of the Budget and “elevated” cost inflation.

The retailer, which has been seeking to revive its fortunes in recent years after decades of failed reinventions, reported a 17.2 per cent increase in profit before tax and adjusted items to £407mn in the six months to September 30, ahead of analysts’ expectations.

Food sales were up 8.1 per cent year on year to £4.2bn, while clothing and home goods sales rose 4.7 per cent to £2bn, also ahead of forecasts, although sales in its international division fell 11.6 per cent. Group revenue increased 5.7 per cent to £6.5bn.

The company attributed the performance to winning more customers from rivals and forecast “further progress” in the second half of the year.

M&S shares have soared 74 per over the past year, recently climbing to an eight-year high. It has been closing less profitable or productive stores that sell clothing, home and food products in recent years and opened more of its popular food shops, while modernising its technology, ecommerce operations and supply chain.

The recent UK Budget’s long-term impact on M&S, suppliers and customers was “for now uncertain”, the company said on Wednesday.

Rachel Reeves last week announced an increase in employers’ national insurance contributions by 1.2p to 15p and a reduction in the earnings threshold at which the tax kicked in, hitting the retail, hospitality and leisure sectors.

The FTSE 100 company, which laid out a five-year growth plan to investors in 2022, also said it would pay an interim dividend of 1p a share, a third of last year’s total dividend. The final dividend would be determined at year-end, it added.

The retailer said in May it was in its best financial position in almost 30 years, having strengthened its balance sheet.

Richard Chamberlain, a retail analyst at RBC Capital Markets, said M&S “has been making good progress with its food business, helped by an improved value for money perception, while its clothing offer has benefited from a stronger digital offer, third-party brands and a better bought range, with improvements in style, quality and value perception”.