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Marks & Spencer expected to reveal leap in profits: what the analysts say

TheIndustry.fashion
20 May 2024

Marks & Spencer is expected to reveal a jump in annual profits on Wednesday (22 May) when it reports to the market after a bumper year, according to industry analysts.

The high street giant has enjoyed buoyant sales across its food halls and clothing & home arm, having undergone a significant turnaround plan in recent years, including cost-cutting and store closures.

It has also delivered cheer for investors, resuming its dividend payout in 2023 after a four-year pause, in a year that also saw it return to the FTSE 100 Index.

Most analysts are pencilling in a 35% rise in underlying pre-tax profits to £653 million for the year to April on revenues 8.9% higher, according to AJ Bell.

Guy Lawson-Johns, equity analyst at Hargreaves Lansdown, said: “Growing market share and margins whilst embarking on a significant cost-cutting programme is a tough balancing act, but the group’s nailed it so far.

“Along with Lidl and the retail arm of Ocado, which it owns a 50% share of, M&S is ranked as Britain’s fastest-growing grocer over the last quarter.

“But the retail sector is a notoriously tricky operating environment and wage inflation and business rates have provided an unwanted challenge to its cost-cutting programme.”

Danni Hewson, AJ Bell head of financial analysis, said the final six months of the year may also have been quieter for M&S, with all eyes also set to be on the outlook for the current year.

She said: “Ongoing investment, variable weather, sticky interest rates and the uncertain economic outlook could have made for a quieter-than-usual second half, but M&S does seem to be on the right track.”

She pointed to a boost to consumer spending from higher wages, while M&S’s clothing arm is also “on a roll” thanks to better ranges and faster stock turn.

“Any guidance for the year to March 2025 will be just as important as the results for fiscal 2024 and the consensus estimate is for an 8% increase in underlying pre-tax profit to £705 million, with like-for-like sales growth of around 2%, helped by the ongoing £400 million cost savings programme,” she said.

But its retail joint venture with Ocado will also come under scrutiny.

It was revealed earlier this year that Ocado could take legal action against M&S unless they reach agreement over the final instalment of £190.7 million as part of the payment for the £750 million 50-50 Ocado Retail tie-up, which was launched in 2019.

Ocado Group boss Tim Steiner said the firm will “most likely” reach a negotiated settlement over the payment.

M&S has the option this financial year to consolidate Ocado Retail’s numbers into its own accounts, “and that could weigh on the group’s profits, given how the operation continues to lose money”, according to Hewson.

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