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Wednesday, December 8, 2021

M&S warns of supply chain costs as profits surge


Marks and Spencer reported a surge in profits as its food division helped it bounce back after Covid restrictions.

In the six months to October, the retailer made £187.3m in pre-tax profits, compared to a loss of £87.6m in the same period last year.

Food sales increased by 10.4 percent, while overall clothing and home sales fell by 1%, but full-price sales increased by 17.3 percent.

However, the company stated that it expects “significant” increases in supply chain costs due to worker shortages.

The retailer also predicts that costs will rise during the remainder of the fiscal year and become “steeper again” in 2022-23.

M&S CEO Steve Rowe stated, “The hard yards of driving long-term change are beginning to bear fruit in our performance.”

Despite the positive results, Mr Rowe stated that “given M&S’s history,” the company would not “overstate our progress.”

Despite warnings about driver and warehouse worker shortages, M&S shares were up 20% on Wednesday morning as a result of the company’s half-year results.

M&S, like many other companies, acknowledged that lorry driver shortages posed challenges, but added that it had implemented several recruitment projects and incentives to attract new drivers and that it believed its food business was “comparatively well placed” to deal with the shortages.

The department store added that it hoped to drive “long-term growth and loyalty” through its food delivery partnership with Ocado by providing better service and quality.

M&S owns 50% of Ocado’s retail business, which will begin delivering M&S food in September 2020.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, commented on the latest results, saying M&S’s decision to raise its full-year profit forecast to around £500m demonstrated “how lucrative the food arm of the business has become.”

“Marks and Spencer may have been late to the grocery e-commerce party, but with Ocado in hand, it’s muscled into a prime spot on the dance floor and is enjoying the hits,” she said.

“This long-suffering high-street fixture appears to have turned a sharp corner, demonstrating that management’s transformation strategy is paying off. Rather than being a department store that sells food as an add-on, Marks is transforming into a grocery powerhouse that sells clothes and homeware as add-ons.”


Julie Palmer, partner at Begbies Traynor, agreed that M&S’s food business remained the company’s “cash cow,” but warned that if the company “hopes to avoid disappointing investors this festive period,” it would need to hold on to its transformed brand and soften the impact of supply chain issues.

Meanwhile, interactive investor’s head of markets, Richard Hunter, stated that Marks & Spencer “was one of many companies where the pandemic forced accelerated change and the results are beginning to bear fruit.”

“Perhaps most noticeably, the dormant giant that was the clothing and home business is waking up,” he said.

“Previously regarded as tired and dowdy, the general offering has been revitalised, and early indications are promising.”

“It’s quite nice to be making some money again,” M&S chairman Archie Norman joked in the company’s glossy results presentation video.

This retailer has gone through a slew of turnaround plans, but is the most recent one, which began four years ago, finally bearing fruit?

These figures are certainly encouraging, with a rebound in sales from the worst of the pandemic last year.

The company has also emerged stronger. Food is driving sales and profits, but full-price clothing sales are up 17%, resulting in higher profits in this division as well.

In addition, compared to two years ago, online sales have increased by 60%. M&S must now deliver Christmas amidst all of the operational challenges that this critical trading period will bring.

There are numerous supply chain issues and cost pressures weighing on all retailers. However, after years of false dawns, this is a company that is now confident that it is on the right track.

In other news, Halfords reported a 19.2 percent increase in sales over the previous two years, “despite the known supply chain disruption.”

The company’s chief executive, Graham Stapleton, stated that demand for bicycles remained “good,” and that the company was “pleased” with the current availability of children’s bicycles and electric bikes in the run-up to Christmas.

Mr Stapleton, on the other hand, said that “moving anything” around the world in the last six months had been “particularly difficult,” with freight costs sometimes reaching ten times the normal rate.

“Even if goods are manufactured and a container is found to ship them to the UK, the recent HGV driver shortage has made this final leg of the supply chain more expensive and unreliable,” he explained.

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