M&S has revealed that food sales up are up by more than 5% as group half-year profits plummet by nearly a quarter, with rising costs offsetting otherwise strong sales growth.
The high street giant – which recently announced it would be focusing on its Simply Food business and opening 104 new Food stores in the next five years – also warned of tougher trading ahead despite reporting “robust” sales across its food, clothing and home categories.
M&S Food outperformed the market on both value and volume, with like-for-like sales rising by 3% across the six-month period to 1 October, with total food sales up 5.6%. Some 27 new Simply Food stores opened over the same period.
However, operating profit plummeted by 42% to £71.8 million, with the strong sales “offset by value investment and cost pressures”. The retail group took a hit from its ongoing investment in keeping food prices low as it decided not to pass the 11% increase in food prices onto customers, while overall costs were also up 8.4% on last year.
The retailer has invested heavily in its ‘quality food at outstanding prices’ strategy for M&S Food, introducing its ‘Remarksable’ value line earlier this year and locking the prices of 100 family favourites earlier this month. It also continues to invest in innovation, launching around 900 new lines over the period, up 4% on last year.
The new Food store format roll-out is also performing well, with the shift to larger stores already proving successful. During the period seven stores were converted to the new renewal format, with food sales increasing by 17.8%.
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Taking control of its Food supply chain by acquiring Gist has also allowed M&S to address the significant headwind of supply chain costs by removing annual management fees of around £25 million and introducing immediate productivity improvements.
Elsewhere, M&S reported a difficult trading period for its Ocado retail joint venture, which saw revenues fall by 4.2%. It is now expected to record a loss, following on from the strong trading conditions experienced during the pandemic.
The retailer said it plans to grow the venture by re-energising Ocado Retail’s customer proposition of “market leading quality, service and choice underpinned by M&S Food” under new leadership.
Underlying pre-tax profits across the group fell by 23.7% to £205.5 million in the same period. M&S also warned of “more challenging” trading ahead in the cost-of-living crisis and said it is looking to make savings of around £150 million in 2023-24 to offset soaring inflation.
Full-year pre-tax profits are expected to be “similar” to previous guidance, which predicted a drop in underlying profits to £397 million (down from £523 million in 2021-22).
Chief executive Stuart Machin said: “Trading in the first half has been robust with both businesses growing ahead of the market, reflecting the beginnings of a reshaped M&S.
“In Food, investment in trusted value has driven top-line growth but short-term profit has been reduced, although the acquisition of Gist gives us control of one of our biggest cost and efficiency levers.
“This progress means we face into the current market headwinds with an increased resilience and level of confidence. Looking beyond the current stormy weather, much is in our control and our mandate is clear – to step up the pace, accelerate change, drive a simpler, leaner business and invest in growth opportunities to build a reshaped M&S.”