M&S' strategy 'beginning to deliver' as dividend set to resume

British clothing and food retailer Marks & Spencer said its turnaround strategy was showing signs of delivery, enabling it to restore its dividend and forecast "modest" revenue growth and a profit outcome ahead of market expectations this year.

British clothing and food retailer Marks & Spencer said its turnaround strategy was showing signs of delivery, enabling it to restore its dividend and forecast "modest" revenue growth and a profit outcome ahead of market expectations this year. Shares in the 139-year old M&S soared 13% in morning trading, extending 2023 gains to 50%, as hopes were raised that one of Britain's most elusive turnarounds could finally materialise after two decades of false dawns.

But while the shares were trading around 185 pence, they remain well off the 257 pence they were changing hands for in January 2022. Under CEO Stuart Machin, M&S is seeking to build a more resilient business with a renewed focus on the quality and value of its clothing and food, heavy investment in technology and e-commerce, and a radical overhaul of its store estate.

It reported a better-than-expected 7.8% fall in 2022/23 profit and said it had made a good start to its new financial year, with both the food and clothing and home divisions growing sales. "While the economic outlook for consumer spending is uncertain, cost inflation remains high, and market conditions are expected to become more challenging, the strategy is beginning to deliver improved performance and there remains much within the group's control," M&S said.

Interim finance chief Jeremy Townsend told reporters he expected 2023/24 profit to be 5 to 10 million pounds below the 2022/23 outcome. For the year to April 1, M&S made a profit before tax and adjusting items of 482 million pounds, while prior to Wednesday's update analysts were on average forecasting about 400 million pounds for the 2023/24 year.

"We expect that consensus will increase significantly today, with the higher base and cost headwinds not quite as dramatic as feared," said analysts at Peel Hunt. The group said cost headwinds in 2023/24 included over 50 million pounds of additional energy costs and more than 100 million pounds of extra labour costs. However, these would be offset by targeted cost savings of 150 million pounds.

M&S has not paid a dividend since its 2019/20 year as part of a policy to protect its balance sheet during the pandemic. It said it plans to restore a modest payment, starting with an interim dividend at the results in November.

Profit fell in 2022/23 despite an 9.6% rise in revenue to 11.9 billion pounds, due to higher energy and staff costs and unhelpful currency moves. It was also dented by M&S's exit from Russia, the lack of the prior year's government support on business rates and a share of losses from its online grocery joint venture with Ocado .

"M&S has taken some important self-help measures in recent years and, with a strengthened balance sheet and a new set of priorities, it is in a stronger position than it has been for some time," Zoe Gillespie, investment manager at RBC Brewin Dolphin said. ($1 = 0.7923 pounds)