M&S lifts guidance again as interims beat expectations

Food and clothing retailer Marks & Spencer lifted annual guidance for the second time in three months as interim earnings rose above pre-pandemic levels.

The company on Wednesday forecast full-year profit before tax and adjusting items of around £500m, up from August estimates of £350m.

Earnings for the six months to October 2 rose 17.9% to £187.3m compared with the same period two years ago, driven by a 10% jump in food sales, aided by store re-openings for the full period, as well as “substantial improvement” across its clothing and homeware division which has been struggling in recent years. Group sales rose by 5% year-on-year to £5.1bn.

However, M&S added that it expected headwinds from Brexit and supply-chain constraints to continue into next year.

Chief executive Steve Rowe said both parts of the business were making “important gains" in market share, adding that “the hard yards of driving long-term change are beginning to be borne out in our performance”.

Profit before tax and adjusting items of rose 52% on a two-year basis to £269.4m against analyst forecasts of £205m - £264m and versus a loss of £17.4m last year.

Food sales increased 10.4% on 2019, while clothing and home revenue was down 1%, with full price sales up 17.3%. Revenue from the clothing and home business were down 1%, although online sales continued to grow, rising 61% over the period. offsetting a 18% decline in high street sales.

Trading for the first four weeks of the second half had been consistent with growth rates reported in the second quarter and ahead of management expectations. Management said it expected the strong demand to be sustained in the near term.

“Well-publicised supply chain pressure, combined with pandemic supply interruptions, rising labour costs, EU border challenges and tax increases means the cost incline becomes steeper in the second half and steeper again in the 2022-23 year,” Rowe said.

“That will increase the importance of our productivity plans, store rotation and technology investment.”

Analysts at Peel Hunt said upgraded their rating on the stock to 'buy' from 'add' and raised the target price to 260p from 190p, calling the results "an impressive showing".

They also raised their full-year pre-tax profit forecast to £500m from £375m and to £525m for the following year from £427m.

"We have no doubt the shares will respond well to this, but we see positive fundamental movement here as well," they added.