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The boss of Marks and Spencer has said the retailer “can’t rule out” price increases after a £60mn hit to its tax bill following Labour’s Budget as it beat profit expectations thanks to strong food and clothing sales.
Chief executive Stuart Machin said that UK chancellor Rachel Reeves’ changes last week — an increase in employers’ national insurance contributions and a reduction in the earnings threshold at which the tax kicks in — would take its annual tax bill to about £520mn.
He added that M&S “didn’t quite see the double whammy coming up” and it was “definitely not planning to increase prices” but he could not rule out such a move, even though the company was now well versed in absorbing cost inflation after elevated levels in recent years.
The planned increase in the national living wage would add another £60mn to the group’s costs, he said, but this had already largely been factored into its forecasts before the Budget.
“We have to work incredibly hard [but] if we invest in quality, drive volume, keep our prices at fantastic value, that is the way to go,” he said.
His comments came after the retailer, which has been seeking to revive its fortunes in recent years after decades of failed reinventions, reported a 17.2 per cent increase in profit before tax and adjusted items to £407.8mn in the six months to September 28, ahead of analysts’ expectations, and as its turnaround gathers pace.
Food sales were up 8.1 per cent year on year to £4.2bn, while clothing and home goods sales rose 4.7 per cent to £2bn, also ahead of forecasts. Group revenue increased 5.7 per cent to £6.5bn.
Shares in the group were up 6.6 per cent to 408p in early trading.
The company attributed the performance to winning more customers from rivals and forecast “further progress” in the second half of the year.
M&S shares have soared 74 per cent over the past year, recently climbing to an eight-year high. It has been closing less profitable or productive stores that sell clothing, home and food products in recent years and opened more of its popular food shops while modernising its technology, ecommerce operations and supply chain.
Machin warned, however, that there was “so much more to do” to ensure that the early transformation of the business was permanent, including overhauling its store estate at a faster pace, improving its website and arresting a decline in sales at its international arm, where sales fell 11.6 per cent during the period.
The FTSE 100 company, which laid out a five-year growth plan to investors in 2022, said it would pay an interim dividend of 1p a share, a third of last year’s total dividend. The final dividend would be determined at year-end, it added.
The retailer said in May it was in its best financial position in almost 30 years, having strengthened its balance sheet.
Richard Chamberlain, a retail analyst at RBC Capital Markets, said M&S “has been making good progress with its food business, helped by an improved value for money perception, while its clothing offer has benefited from a stronger digital offer, third-party brands and a better bought range, with improvements in style, quality and value perception”.
