Shares in Marks & Spencer jumped 11% after the embattled retailer issued a surprise profit upgrade, as the relaxation of coronavirus restrictions helped sales bounce back to better than pre-pandemic levels in parts of its business.
The retailer, which last year announced its first annual loss in 94 years as a publicly listed company, has cut about 7,000 staff as the pandemic hammered the high street. It provided some welcome good news for investors on Friday, saying it expected annual profits to beat previous guidance of £300m to £350m.
The company said the profit upgrade, which fuelled the share surge making M&S the top riser in the FTSE 250 on Friday, was caused by a combination of pent-up consumer demand as well as the fruits of its restructuring programme.
“At the start of the year, continued restrictions across large parts of the M&S store portfolio meant that the trading outlook was highly uncertain,” the retailer said. “Since then, M&S has seen an encouraging performance providing confirmation that the transformation programme is on track.”
M&S’s food division has proved to be its star performer with revenue outperforming expectations, up 10.8% year on year in the 19 weeks to 14 August. Sales were 9.6% higher compared with 2019.
“Despite variable location performance, overall trading has been ahead of the market,” the company said. “Cost-reduction programmes are helping to mitigate cost inflation and disruption in the supply chain, and the cost of increased colleague absence in the period.”
The retailer also said there had been a good recovery at its clothing and home division. Revenue was up 92% year on year for the period, and down 2.6% on sales levels pre-pandemic two years ago. It said a new approach to trading, including more focused ranges, fewer promotions and a substantially smaller summer sale, had helped full-price sales climb 9% compared with last year.
However, the figures also showed the changing nature of consumer buying habits, which have accelerated during the Covid pandemic, with clothing and home sales made at stores falling by a fifth.
By contrast, digital sales soared 62% year on year for the period to now account for 35% of total clothing and home sales.
“The pivot to online has continued,” the company said. “Many locations remain in slow recovery from the pandemic, although retail parks have outperformed.”
While the news has provided a much-needed boost to its prospects, the company aired a note of caution as to future performance. “There remains substantial uncertainty as to the continued strength of consumer demand, as well as disruption in both supply chains and consequent pressures on costs and margin,” it said.
In May, M&S said it would accelerate its store closure plans after reporting a £201m pre-tax loss in the year to 27 March.