M&S warns over ‘gathering storm’ and additional value hikes

Excessive avenue large Marks & Spencer has warned over a “gathering storm” forward because it forecast a steep droop in buyer demand subsequent yr and mentioned extra value hikes are on the way in which.

The retailer mentioned whereas gross sales had been to this point proving resilient and clients are “decided” to spend over Christmas, buying and selling will turn out to be a lot harder within the new yr because the cost-of-living disaster hits exhausting.

Shares in M&S fell 6% in morning buying and selling on Wednesday because it forecast a “materials contraction” in market demand over its subsequent monetary yr.

It predicted a raft of shops will go bust because the pressures take their toll.

The chain mentioned the M&S shopper is ready to show extra resilient, whereas a current overhaul on the group “could present some insulation from the gathering storm”.

It has reined in value rises the place it may possibly, passing on value will increase of round 8% throughout its meals halls versus an 11% rise in its personal prices.

However it lifted clothes and residential costs by about 7% within the first half and is ready to extend these additional because the pound’s droop in opposition to the US greenback makes it dearer for the group to purchase in inventory.

M&S mentioned: “We count on market circumstances to turn out to be more difficult in 2023-24.

“The mixed impacts of the cost-of-living squeeze and essentially the most marked rise in the price of doing enterprise for a few years are creating strain on margins industry-wide.

“All components of the retail sector might be affected, and this can end in unviable capability leaving the {industry}, creating alternatives for the leaner gamers who stay.”

The gloomy outlook got here because it reported a 23.7% fall in underlying pre-tax earnings to £205.5 million within the six months to October 1 because it noticed double-digit inflation in meals prices and suffered a £700,000 loss in its Ocado retail three way partnership.

Earnings had been additionally knocked by the price of increased property taxes after the tip of enterprise charges reduction, in addition to its exit from Russia.

M&S mentioned like-for-like gross sales jumped 13.7% throughout its resurgent clothes and residential division as its bounce-back gathers tempo, whereas comparable gross sales lifted 3% throughout its meals enterprise.

However underlying earnings within the meals division slumped to £71.8 million from £124 million a yr earlier as prices weighed on the division.

M&S mentioned it expects to submit full-year pre-tax earnings “related” to the steering it set out beforehand, with most analysts anticipating a fall in underlying earnings to £397 million in opposition to £523 million in 2021-22.

The corporate mentioned buying and selling within the first 4 weeks of its all-important second half was according to its forecasts, with gross sales up 4.2% in clothes and residential, 3% increased for meals and 4.1% forward in its worldwide enterprise.

Chief govt Stuart Machin mentioned clients had been prioritising Christmas spend, with a current ballot exhibiting its customers have already purchased round 30% of their festive presents.

However he mentioned “we are attempting to brace ourselves” for a post-Christmas spending clampdown.

“We’re very targeted on the early a part of subsequent yr, the place a few of these value headwinds for households will hit,” he mentioned.

It’s trying to make financial savings of round £150 million in 2023-24 to offset hovering inflation and assist it climate the harder buying and selling.

M&S lately mentioned it’s rushing up a significant shake-up of its shops property, which can end result within the closure of 67 bigger retailers as a part of long-term plans to axe 110 shops underneath a sweeping overhaul led by earlier boss Steve Rowe.

Susannah Streeter at Hargreaves Lansdown mentioned the restructuring was “exhibiting nice strides of progress”.

“Nonetheless, there are indicators within the final 4 weeks that demand is weakening, as cost-of-living headwinds whip up and with prices set to remain elevated it’s clear the subsequent yr might be difficult,” she mentioned.