High street chain Marks & Spencer warned of tougher trading ahead as it revealed that its half-year profits dropped by nearly a quarter after soaring costs offset resilient sales growth.
It reiterated that full-year profit would fall short of the prior year due to higher costs and pressure on household budgets. Inflation in the UK currently stands at 10.1 per cent while food inflation is even higher, at 14.7 per cent, with no peak in sight.
M&S, whose shares have halved this year, said total food sales increased 5.6 per cent in the first half, while clothing and home sales rose 14 per cent.
The 138-year-old clothing and food group, one of the biggest names in British business, reported a 23.7 per cent fall in underlying pre-tax profits to £205.5 million ($236m) in the six months to October 1 as it saw double-digit inflation in food costs, as well as more difficult trading in its Ocado retail joint venture.
Profits were also knocked by the cost of higher property taxes after the end of business rates relief, and its exit from Russia.
Underlying earnings in the food division slumped to £71.8m from £124m a year earlier as it said it chose not to fully pass on an 11 per cent increase in costs to customers.
The group warned of “more challenging” trading ahead and said it is looking to make savings of around £150m in 2023-24 to offset soaring inflation and help it weather the storm.
M&S's popularity among older, more affluent customers gives it some protection from the crisis, but analysts are still concerned it will feel the pinch, with both its food and clothing divisions at risk of shoppers heading to cheaper rivals.
M&S said it expects to post full-year pre-tax profits “similar” to the guidance it set out previously, with most analysts expecting a fall in underlying profits to £397m, from £523m in 2021-22.
This strips out the impact of business rates relief ending, Russia, and Ocado Retail, which is now expected to record a loss, according to M&S.
Chief executive Stuart Machin said: “Trading in the first half has been robust, with both businesses growing ahead of the market, reflecting the beginnings of a reshaped M&S.
“This progress means we face into the current market headwinds with an increased resilience and level of confidence.”
He added: “Looking beyond the current stormy weather, much is in our control and our mandate is clear — to step up the pace, accelerate change, drive a simpler, leaner business and invest in growth opportunities to build a reshaped M&S.”
The company said trading in the first four weeks of its second half was in line with its forecasts, with sales up 4.2 per cent in clothing and home, 3 per cent higher in food and 4.1 per cent ahead in its international business.
M&S recently said it is speeding up a major shake-up of its stores estate, which will result in the closure of 67 larger shops as part of long-term plans to axe 110 stores under a sweeping overhaul led by previous boss Steve Rowe.