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(Alliance News) - Analysts cheered an upbeat set of annual results from Marks & Spencers Group PLC, with the firm artfully managing costs amid sky-high inflation and strengthening its offering to customers in both food and fashion.
Shares in M&S were up 12% to 182.85 pence each in London on Wednesday morning.
In the financial year that ended April 1, the London-based clothing, homewares and food retailer said revenue rose 9.6% to GBP11.93 billion from GBP10.89 billion.
"It feels like the longest turnaround in corporate history, but there are finally signs that Marks & Spencer has struck the right formula. Rather than the usual story of strong food sales making up for weakness in clothing, both parts of the business are now doing well," commented AJ Bell investment director Russ Mould.
The turnaround plan was started by previous CEO Steve Rowe and carried forward by his successor Stuart Machin, who before his promotion had led M&S Food.
M&S on Wednesday said its annual performance was driven by Clothing & Homes sales, which rose 12%.
The retailer said fashion sales growth was aided by "a more confident" approach to buying, with the focus moving to the "modern mainstream customer". This is helping to drive "better style perceptions", M&S claimed.
"Marks & Spencer has always been the go-to place to buy pants and socks, but the rest of its clothing line has generally been seen as deeply unfashionable. Over the years we've had various people try to solve this problem with little success," Mould continued.
"More recently, a bigger push on athleisure has helped to bring in a younger crowd, while a greater focus on mainstream items such as casual dresses and denim have made the company more appealing to the general shopper."
Meanwhile, International sales rose 13%, thanks to global demand for clothing, as profit in the division recovered from its Russian exit and EU border-related costs.
Food sales rose 8.7% from the previous year.
"Food sales continued to be strong with the company increasing its market share. A decision not to pass on the full impact of cost inflation has worked wonders, with much of sales growth being driven by volume as prices on many items haven't gone up as much as other grocery sellers," Mould considered.
UK Food sales also got a boost from the recent Gist Ltd acquisition. Last September, M&S acquired Gist - its principal contract logistics provider - for up to GBP255 million.
The acquisition appears to be "helping in terms of streamlining costs through its food supply chain, helping to boost margins there", thinks analyst Michael Hewson at CMC Markets.
The firm's turnaround plan has helped to offset what M&S described as "significant" inflationary cost headwinds hitting margins.
Neil Shah at research house Edison called the M&S results "surprisingly robust".
"These results do not quite bear out the company's apocalyptic warnings of a 'gathering storm' in its 2022 report, which announced a fall in profit of 24%," Shah said.
Looking ahead, M&S expects modest annual growth in revenue. Cost inflation of around GBP150 million is expected to be offset by the same amount in savings from its structural cost reduction programme.
The retailer declared no dividend, but investors welcomed the news that it plans to resume payouts at its interim results. This comes in light of its "disciplined approach to capital allocation", M&S said.
It had suspended dividends at the start of the pandemic, in order to protect its balance sheet.
By Elizabeth Winter, Alliance News senior markets reporter
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