Marks and Spencer’s shares were up 1.7% in early morning trading on Wednesday, after the company announced a revenue growth to £10.8 billion in its FY 2022 results against £9.1 billion in FY 2021.
The retailer reported a rise in operating profit before adjusting items to £709 million compared to £222.2 million year-on-year, alongside a pre-tax swing back to profit of £391.7 million from a £209.4 million loss the last year.
Marks and Spencer’s confirmed a post-tax profit of £309 million compared to a loss of £201.2 million in 2021, marking an overall return to profit for the group as business recovered on the back of lifted Covid-19 restrictions.
The company noted a free cash flow of £699.2 million from £296.4 million in 2021, with a net debt decline to £2.7 billion compared to £3.2 billion the previous year and a £400,000 net debt excluding lease liabilities from £1.1 billion, which the firm attributed to its recovery of profit, combined with a focus on working capital and tightly controlled capital expenditure.
“For me, what is important about these results is not just the restoration of profit and strong cash flow; it is that they demonstrate that M&S has fundamentally changed,” said Marks and Spencer’s CEO Steve Rowe.
“While there is much more to do, the business has moved beyond proving its relevance and has the opportunity for substantial future growth.”
“It has been my privilege to be the steward and shopkeeper of this fantastic business and extraordinary brand at such an important stage in its history.”
Online Sales Growth
The firm commented that its international online retail sales grew to £250 million compared to £100 million in the 2019 to 2020 term, as a result of expansion in markets with a store presence and global platforms.
Marks and Spencer’s highlighted a 3.8% uptick in online clothing and home sales, and a 55.6% climb in overall online sales year-on-year. However, the group confirmed an 11.2% slide in store sales on lower performance from legacy high street and city centre stores.
Meanwhile, food sales saw a 10.1% increase due to robust value and quality perception. The firm said growth in its Costa Coffee and Ocado channels reinforced its belief in the long-term potential to expand its food sectors.
Inflation Approaches
However, Marks and Spencer’s commented that significant inflation its supply chain as a result of labour shortages, global supply issues and international borders and customs expenses, which it reportedly expects to increase going into FY 2023.
The company is subsequently planning for an adverse impact on volumes due to price inflation, which is set to squeeze consumer spending and profit growth.
Despite the warning, certain analysts expect that the firm is better positioned than its bargain competitors to weather the inflationary storm ahead, which they credited to its ‘secret weapon’ in its food business.
“M&S produced a tasty set of results. M&S’s food offering continues to deliver for the Group and our experts say it could be their secret weapon against the inflationary pressure set to rattle other supermarkets,” said Third Bridge analyst Ross Hindle.
“M&S’s premium brand positioning means they are less vulnerable to the pressure from discounters and many of the shoppers they do lose will be replaced by new customers trading down from eating out.”
“Also, the old habits of splitting grocery shopping between multiple supermarkets are back, now the need to do one big weekly shop and return home has dissipated with Covid.”
Russia
The company pulled out of Russia after 17 years on 3 March 2022, in response to the country’s invasion of Ukraine. The exit cost the group a reported £31 million in business disruption and exit costs.
Marks and Spencer’s added that its Ukrainian business had been partially impacted in the war, however it commented that it was currently working with its partner in the state to reopen its outlets at the earliest possible convenience.
Dividend Remains Cut
Marks and Spencer’s mentioned an adjusted earnings per share of 15.7p compared to a loss per share of 10.1p, however the company decided against resuming its dividend payouts in lieu of restoring sustainable profitability and strengthening its balance sheet metrics in line with investment grade.
