UK's Marks & Spencer warns cost of living crisis will hit sales

Multinational retailer says it is withdrawing from its Russian franchise business

Marks & Spencer shares dropped 3.6 per cent as it joined rivals in cautioning on the outlook for the current year amid a worsening cost-of-living crunch. Photo: Alamy

British high street staple Marks & Spencer has given a warning that the surging cost-of-living and a full exit from Russia will prevent its profit from rising this year.

Sales growth will slow because of the squeeze on shoppers from the higher cost of living, the company said on Wednesday.

The 138-year-old clothing and food group, one of the biggest names in British business, swung to a pre-tax profit of £391.7 million for the year to April 2 in Steve Rowe’s final outing as chief executive.

Marks & Spencer shares dropped 3.6 per cent as it joined rivals in cautioning on the outlook for the current year amid a worsening cost-of-living crunch.

It also said it is leaving its Russian franchise business, which is run by Turkish franchisees, operates 48 shops and has 1,200 employees.

In March, the company stopped shipments to the stores but M&S has now said it will “fully exit our Russian franchise” and face a £31 million cost hit as a result.

For the current 2022-23 financial year, M&S said it was starting from a lower profit base because it would not see a repeat of government business rates relief, its international business would not see a contribution from Russia and it was investing in capacity growth at joint venture Ocado Retail.

"The business is now much better positioned and had an encouraging start to the year. However, given the increasing cost pressures and consumer uncertainty, we do not currently expect to progress from this lower profit base in 2022-23," it said.

Trading over the past six weeks has been ahead of levels from last year, driven by strong sales in its clothing and home operations.

The company added: “While encouraging, we expect the impact of declining real incomes to sharpen in the second half and endure for at least the remainder of the financial year.”

It stressed that it currently sees no sign of inflation abating but does believe the rate of cost growth — which includes more expensive goods and soaring utility costs — will subside by the third quarter.

A customer enters a Marks & Spencer store in Moscow, Russia. Bloomberg

M&S said its troubled clothing and home business returned to growth during the year, with sales rising 3.8 per cent against levels from two years ago, before the full impact of the pandemic.

It said this was buoyed by a 55.6 per cent surge in online sales, while stores dipped by 11.2 per cent.

Meanwhile, the group’s food arm reported a 10.1 per cent sales increase.

After presenting the results, Steve Rowe will step down as chief executive after six years in the top job, ending a 39-year career at M&S. He will be succeeded by food boss and joint chief operating officer Stuart Machin.

Rowe’s departure is the end of an era for the executive who has worked his way up from working weekends at the retailer when he was 15. Under his leadership with Chairman Archie Norman, M&S has focused on cutting costs, streamlining the store portfolio, investing in online sales, expanding the food business, and improving the range, design and pricing of apparel.

They’ve also been trying to reduce the retailer’s reliance on sales promotions.