M&S warns consumer squeeze will hit profit growth

Retailer Marks and Spencer has warned that the financial squeeze on UK consumers will hit its profit growth this year.

One of Britain’s best-known retailers said that although trading had been encouraging since early April, it expected the financial pressures on customers to deepen over the rest of the year.

“We expect the decline in real incomes to sharpen in the second half and endure for at least the remainder of the financial year,” the FTSE 250 retailer said in its full-year results statement on Wednesday.

The slowdown is already evident at Ocado Retail, the online grocer that M&S jointly owns with Ocado. Sales growth at the venture will be in the “mid-single digits” this year, down from the 10 per cent it had previously indicated, as rising energy costs take their toll.

M&S said it expected a “minimal” contribution from Ocado Retail to profits in its current financial year, which runs to April 2023.

The lower-than-expected profits from Ocado, the absence of £102mn of Russian sales and a lack of relief on business rates in the UK meant M&S has started the current financial year at a “lower adjusted profit base”.

“Given the increasing cost pressures and consumer uncertainty we do not currently expect to progress from this lower profit base in 2022/23,” the retailer warned.

M&S shares were volatile in early trading in London, while Ocado’s stock was down about 4 per cent.

The cautious outlook from M&S came after chief executive Steve Rowe, who steps down later his month after six years, had made progress in reviving the group’s fortunes.

A better performance from its revamped food business and improved sales of clothing and homewear allowed the retailer to twice upgrade its forecasts during its last financial year.

In the 12 months to April 2, M&S reported pre-tax profit, excluding some items, of £523mn, matching analysts’ forecasts and up from £50mn in the previous financial year. Revenues were £10.8bn, up 7 per cent from last year.

The group said net debt also fell from £1.1bn last year to £420mn, excluding lease liabilities. As expected, M&S did not pay a dividend.

Rowe is set to hand over the chief executive role to Stuart Machin, current head of food. Katie Bickerstaffe, the head of clothing and home, will be co-CEO but will report to Machin.

Analysts at Peel Hunt said that the slower sales at Ocado Retail were “disappointing”, underlining how the business was being hit by the cost of living crisis facing consumers.

M&S booked a profit of £13.9mn from Ocado Retail last year, itself a steep drop from the £78.4mn during the previous year, when Ocado benefited from a big shift to online grocery during the pandemic.

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