The company asserts that it is in a strong position to overcome the challenges ahead, even though prices have negatively impacted its bottom line in the lead-up to the crucial Christmas season. However, its stock price plummets as it anticipates a difficult 2023.
Marks and Spencer (M&S) has revealed a significant decline in profits and issued a dire forecast due to growing prices and tightening consumer budgets.
For the six months ending on October 1st, the business posted a profit before taxes and adjusting items of £205.5 million.
Despite a business-wide revenue gain of 8.5%, this was 24% less than the same period last year.
Total food sales jumped by 5.6% during the time, but clothes and home sales, which have historically been a major challenge for M&S, increased by 14%.
It celebrated its first gains in clothes and home market share since 2012
However, it reaffirmed advice that full-year earnings would fall short of the prior year owing to challenges in the retail sector, notably the cost-of-living problem, and it anticipated a “substantial decline” in customer demand in the coming year.
Amid the biggest inflation in forty years, consumers’ discretionary income is declining.
In addition to increasing wage and energy costs and a stronger dollar, these headwinds diminish its purchasing power.
The corporation stated that it will be looking for assistance with business rates in the next week’s fall statement from the chancellor.
The financial performance also reflects the lack of business rates relief the company received from the government during the COVID pandemic, as well as earnings contributions from Russia and Ocado Retail, the joint online venture with Ocado Group.
In the first half of the year, the latter incurred a loss of £700,000 as delivery volumes decreased from their pandemic peak and the company invested in its product.
Following Vladimir Putin’s invasion of Ukraine, M&S left Russia.
The firm stated that its efforts to reduce expenses by closing underperforming stores, increasing its online presence, and reshaping its physical retail portfolio were mitigating some of the damage.
It did not expect the avian flu outbreak to impair turkey supplies in the lead-up to Christmas, and it had already received robust food orders for the holiday season.
Shares, already down 49% for the year, fell another 6%.
This was not helped by the delayed reinstatement of dividends.
CEO Stuart Machin stated, “First-half trading was healthy, with both businesses outpacing the industry in terms of growth, showing the beginnings of a restructured M&S.”
He added, “Our business is supported by a better balance sheet with decreased debt and a solid cash position.”
This advancement allows us to handle the current market headwinds with improved resilience and confidence.
“Beyond the current severe weather, our mandate is clear: to increase the pace, accelerate transformation, create a simpler, leaner organization, and invest in growth possibilities to reinvent M&S.”
Orwa Mohamad, an analyst at Third Bridge, stated in the company’s latest report, “This Christmas will be significant for M&S.
“Much depends on the grocer’s ability to convince consumers that they can have a restaurant-like experience at home as they trade down from restaurants to meal delivery.
“The greatest difficulty for M&S is changing its image from a specialty retailer to a weekly grocer.
“There is a chance that a big proportion of infrequent shoppers would abandon the brand as they reduce their discretionary spending.”
