Marks & Spencer shares jumped on Wednesday after the retailer released surging profits that beat expectations and reinstated the dividend.
M&S delivered a bumper performance in the half year to 30th September, with profit before tax and adjusting items reaching £360.2m, up 75% from £205.5m in the prior year.
Statutory profit before tax also rose significantly to £325.6m, up from £208.5m.
Marks & Spencer shares were 9.9% higher at the time of writing.
The M&S food business was a major source of growth as demand for their premium range proved resilient despite concerns about the cost of living crisis.
Food sales were up 14.7%, driving an adjusted operating profit of £164.9m – a substantial increase from £71.8m in the same period last year.
The Clothing & Home business has been the laggard for M&S in recent years yet shareholders will be pleased with recent performance in the segment. Sales rose 5.7% while producing an adjusted operating profit of £223.4m, an improvement of £171.7m in the last year.
“Good progress in Clothing and Home, where Marks & Spencer has struggled in recent years, has to be commended. It shows the extent to which the company has regained its style credentials and it is particularly admirable given the pressure on sales of discretionary items amid the cost-of-living crisis,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.
Chiekrie continued to explain that although Home & Clothing was good, food was the main event for investors.
“M&S food was the standout performer in the first half, with demand here arguably more protected from high levels of inflation. At a more premium end of the market, M&S’ core customers aren’t as sensitive to price,” said Chiekrie
“Coupled with impressive margin growth, total underlying operating profits jumped significantly. There’s also been good headway on the group’s reshape programme, which looks to pivot to new locations and refresh existing stores to create a more productive estate. Full-year guidance has been maintained, albeit performance is expected to be weighted towards the first half, with the group likely wanting to get through the Christmas period any potential move of the dial on expectations.”
While the sales numbers for both the clothing and the food businesses were very respectable, the most positive takeaway from today’s update is the reinstatement of the M&S dividend, which was scrapped in 2019.
After a long wait for the turnaround strategy to filter through to earnings, M&S is rewarding shareholders with a 1p interim dividend.
There was a tone of caution in the company’s outlook as they highlighted the geopolitical environment, interest rates and tough comparables going forward.
“However, pressure on the UK consumer could intensify heading into 2024 as the impact of higher interest rates really starts to bite. This, combined with tougher comparatives means M&S is striking a tone of caution looking ahead to the second half. This may disappoint investors,” said Wealth Club’s Charlie Huggins.