Britain’s surging inflation is squeezing profit margins at Marks & Spencer Group Plc’s food division as the premium supermarket chain absorbs some cost increases to maintain sales.
(Bloomberg) — Britain’s surging inflation is squeezing profit margins at Marks & Spencer Group Plc’s food division as the premium supermarket chain absorbs some cost increases to maintain sales.
M&S’s food business, which has been the company’s growth driver in recent years, was faced with 11% inflation in its cost of goods in the first half, while its online joint venture with Ocado Group Plc recorded a loss as demand reverts to in-store shopping. The clothing and home unit, which has struggled of late, did better, with a 14% sales gain.
The shares fell 2.1% in early trading.
It’s the first earnings update under new Chief Executive Officer Stuart Machin and co-CEO Katie Bickerstaffe, who took over earlier this year from Steve Rowe. M&S warned in May that the cost-of-living crisis and a full exit from Russia would prevent profit from rising this year.
M&S is still working through a turnaround after more than a decade of attempts to jump-start the business. The biggest tasks are tackling the company’s expensive store portfolio, boosting online sales and staying competitive in clothing after being dismissed as old-fashioned, ill-fitting and pricey.
M&S’s clothing division has gained market share and grown in profitability, even as profit before tax and adjusting items fell by 24% across the whole business from a year earlier. Overall trading is showing “the beginnings of a reshaped M&S,” Machin said.
Still, the retailer said it’s deferring any decision about restarting a dividend to closer to the year-end, having skipped a payout to shareholders for two years. The stock has lost half its value this year.
M&S is planning for a “material contraction” in demand in the market next year though it said its customers may prove resilient as they have on average slightly higher incomes and age demographics. Last week the company said it was locking prices on more than 100 supermarket items until the end of January as it tries to compete with cheaper grocers that are gaining market share.
Like some of its rivals, M&S has boosted employee pay twice this year and is offering other incentives to staff including free meals and M&S vouchers.
M&S is looking to demolish and rebuild its Marble Arch store in London and, despite political opposition, its controversial plan has recently secured the backing of Selfridges and Ikea which have large plots nearby.
The business suffered a blow to its top team in July when it was announced that Eoin Tonge, chief financial and strategy officer, is leaving to join Associated British Foods Plc, the owner of Primark.
(Updates with share move, context from third paragraph.)
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