M&S warns of a ‘material contraction’ in demand

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  • The results show that Marks & Spencer’s profit fell 24% in the first half.
  • It says the sector is facing a “looming storm” amid rampant spending.
  • Over the past year, Marks & Spencer’s share price has fallen by more than 40%.

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Marks & Spencer’s first-half profit fell 24%, according to fresh data released today.

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retailer confirmed that it expects its annual profit to be lower than last year due to higher costs and pressure on household budgets.

M&S said it expects a “substantial reduction” in consumer demand next year as consumers battle rising inflation.

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Earnings drop: Marks & Spencer profits fell 24% in the first half.

The group also warned that more retailers will collapse over the next 12 months as many grapple with frenetic spending and shrinking consumer demand.

It states that the combined impact of falling cost of living and the most notable increase in the cost of doing business in many years is putting pressure on margins across the industry.

“This will see unviable capacities leave the industry, creating opportunities for those players that remain.”

It says the sector is facing a “looming storm” that looks set to bring down even more businesses in the coming year. Buyers’ disposable income falls amid the highest inflation in 40 years.

Concerns: M&S says it expects 'substantial reduction' in consumer demand next year

Concerns: M&S says it expects ‘substantial reduction’ in consumer demand next year

M&S shares fell 2.14% or 2.50 pence this morning to 114.55 pence, down more than 40 percent over the past year. The decision to resume the payment of dividends has not yet been made; the last time they were paid was in 2019.

The retailer said it posted £205.5m in adjusted pre-tax profit in the six months to October 1, compared to £269.4m in the same period a year ago.

Earnings were also affected by the exit from Russia and the loss of online joint venture Ocado Retail. There has also been no government rate cut for Covid-related businesses.

But the group’s revenue increased 8.5% to £5.54bn over the period on the back of higher prices.

Stuart Machin, chief executive of the retailer, said: “It is highly likely that conditions across all M&S markets will become more challenging in fiscal 2024.

“As we enter what has traditionally been our strongest quarter, business continues to trade well.”

Over the past four weeks, trading has been in line with forecasts, with apparel and home goods sales up 4.2%, food sales up 3%, and international sales up 4.1%.

While food sales rose 5.6% in the first half, the division’s adjusted operating income fell 42% to £71.8m.

However, the group said its richer customer base, de-leveraging and strong market power in divisions such as school wear have given the company “opportunities for greater resilience.”

John Moore, senior investment manager at RBC Brewin Dolphin, said: “M&S’s earnings are down, but the effects of the economic downturn have yet to show in the company’s numbers.

“However, M&S has spoken out against its renewal, highlighting a number of self-help measures it is taking.

“Being at the forefront of cost savings is good for the next 18 months, which will no doubt be very difficult, while the Gist acquisition is also forward-thinking and provides an element of supply chain cost control – a major concern for many. retailers this year. Inevitably, there is caution for the remainder of 2022 through 2023, but M&S ​​has shown that it is ready for change and is taking much-needed steps in the right direction.”

Richard Hunter, Head of Markets at Interactive Investor, said: “Despite all the progress, and even with a traditionally strong last quarter, the outlook for next year is bleak for reasons largely beyond the company’s control.

“The holiday season and rarely held World Cup competitions should provide a short-term boost, while M&S goes out of its way to point out that a significant proportion of its customers are people with higher income and age.

“However, the deteriorating economic outlook has ravaged retailer stock prices in general, and M&S is no exception, with shares down more than 38% over the past year, compared to a 20% drop for the broader market. FTS 250.

“Despite an increasingly attractive valuation historically, the tide has not yet turned in favor of the company and the market consensus is currently stuck at a hold.

Credit: www.thisismoney.co.uk /

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