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(Alliance News) - Marks & Spencer Group PLC on Wednesday raised its annual profit outlook for the second time in less than three months after a sales rebound, but it warned over surging costs and disruption due to supply chain issues.
Shares in the mid cap retailer were up 15% in early trade in London on Wednesday at 223.60 pence each.
In the six months to October 2, M&S reported pretax profit of GBP187.3 million, swinging from a GBP87.6 million loss in the half-year ended September 26, 2020 at the height of the pandemic, and was up 18% on two years ago before Covid-19 struck.
The food, clothing and homewares retailer said it expects full-year underlying profit to beat expectations, now guiding for around GBP500 million - having already upgraded its guidance in late August to above GBP350 million.
This comes despite warnings over "significant" supply chain cost rises over the second half, which it said will continue into the new financial year.
It said it is battling amid shortages for lorry drivers, warehouse and supplier staff, which is particularly affecting its Ocado Retail joint venture.
Chief Executive Steve Rowe said: "Given the history of M&S we've been clear that we won't overclaim our progress. Unpacking the numbers isn't a linear exercise and we've called out the Covid bounce back tailwinds, as well as the headwinds from the pandemic, supply chain and Brexit, some of which will continue into next year.
"But, thanks to the hard work of our colleagues, it is clear that underlying performance is improving, with our main businesses making important gains in market share and customer perception. The hard yards of driving long term change are beginning to be borne out in our performance."
M&S said it is increasing pay to attract and retain workers, "which will put pressure on costs in the remainder of our financial year".
The company declared no interim dividend, unchanged from a year ago. Two years ago, M&S paid a 3.9p interim dividend.
Food sales rose 10% in the first half of the year, but clothing and home sales continued to trail, slipping by 1%. Despite the sales dip, M&S said its online C&H sales were up 61% year on year, but store sales were down 18%.
Ocado customer orders grew by about 19%, but revenue slipped 2.7% by the 26 weeks to the end of August 29, adding GBP28.1 million in net income. M&S product sales on Ocado Retail were about GBP309 million, 27% of total sales.
"Food continues to be the star performer for M&S, with the Ocado partnership now sizzling. M&S products already account for about 29% of the Ocado basket, and given Ocado's expansion plans, the growth outlook in this category looks tasty for M&S," commented Ross Hindle, an analyst at Third Bridge.
"However this bright spot can't mask M&S's structural challenges, particularly in clothing & home, where the store experience, fashion proposition and clothing range remains far off its competitors. M&S's proposition continues to draw consumers towards the upper end of the target 35 to 55 target age range, with the group unable to shake its 'out-dated' fashion label."
By Paul McGowan; paulmcgowan@alliancenews.com
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