Marks & Spencer (M&S) has released its annual results for the fiscal year ending in March, and they have exceeded expectations in a major way. The retailer reported a pre-tax profit of £716.4m, up 58% from the previous year, before adjustments related to its pension scheme. This marks the best annual performance for M&S in a decade.
The company’s share price, which has risen by nearly 80% in the last year, initially saw a sharp increase of 8% before leveling out. This news comes as a blow to those hoping for a June interest rate cut, as M&S’s strong performance indicates a healthier economy.
Chief Executive Stuart Machin attributes their success to progress made on the retailer’s strategic priorities. He highlighted growth in sales, market share, margins, return on capital, and free cash flow as key indicators of their success. Speaking to analysts and investors from the M&S store in Thurrock, Essex, Machin stated that the company’s financial health is the strongest it has been in decades. This has enabled M&S to increase investments and restore its dividend to pre-pandemic levels.
One particularly pleasing aspect for management is that both main segments of the business, food and clothing/home, have shown significant growth. Food, which has been a strong point for M&S in recent years, saw a 59% increase in operating profits to £395.3m. Machin credits this to M&S’s market share growth and record customer numbers, especially among families. The company’s heavy investment in everyday value and reduced reliance on promotions has also contributed to this success. Additionally, M&S added 1,300 new product lines, including ranges focused on gut health and high-protein food.
Clothing and home, which has faced challenges in the past, also saw a 24% increase in operating profits to £402.8m. Machin expressed his enthusiasm for the performance in core product categories such as denim, knitwear, lingerie, and men’s Autograph and Holiday Shop. M&S has traditionally excelled in lingerie, and this year was no exception with sales of bras increasing by 5%, giving the company a record market share of 38.2%. Knicker sales also rose by 3%, with M&S selling a staggering 60 million pairs during the year. The company continues to be the go-to destination for British women buying their first bra, with 30% of women under the age of 30 purchasing their underwear from M&S.
M&S has also regained its reputation for fashion and value in clothing, with Machin crediting the company’s improved and stylish ranges for this success. The company has also seen an increase in full-price sales, with 81% of clothing sales now made at full price compared to 63% the previous year. This shift has been crucial from a financial perspective.
While there were some blemishes in the results, such as increased losses at Ocado Retail, which is jointly owned with Ocado, M&S is looking towards the future with positivity. Machin acknowledged that there is still much work to be done in driving sales growth at Ocado but remains confident in the company’s potential. International sales were disappointing, mainly due to high levels of stock inventory.
Looking ahead, M&S plans to continue cost reductions, with Machin cautioning that inflation is still a concern. However, under the leadership of Machin and Chairman Archie Norman, who has been instrumental in M&S’s turnaround, the company is more confident than it has been in years. Credit is also due to former Chief Executive Steve Rowe, who, along with Norman, took advantage of the pandemic to reshape M&S’s stores and focus on the successful Simply Food proposition. The company has also benefitted from the struggles of its competitors, such as Debenhams, and unique challenges faced by John Lewis.
Despite some skeptics, it is clear that M&S has turned a corner and is on the path to success. The company has not seen such financial strength since 1997, when it achieved a record annual profit of £1.17bn. Machin confidently stated, “M&S ended the year in the strongest financial health since 1997,” making it clear that the company is on the rise.
