M&S results are always closely watched, but industry observers were even more keen to pounce on the retail giant’s results statement on Wednesday following its cyberattack earlier this year.

So what did we learn? The company understandably referred to it as “an extraordinary moment in time for M&S” as profits were crushed, however it stressed that the “underlying strength of our business and robust financial foundations gave us the resilience to face into the challenge and deal with it. We are now getting back on track”.

So let’s look at the numbers. The business said that sales in the 26 weeks to the end of September actually rose 22.1% to just over £7.965 billion. But operating profit before adjusting items plummeted 45.7% to £251.4 million. Adjusted profit before tax for the group was down 55.4% at £184.1 million with adjusting items of £167.8 million. Free cash flow from operations was also down to a negative £193 million having been a positive £21.1 million the year before. On a statutory basis, net profit was almost wiped out with a 97.8% plunge to £6.2 million, having been £282.1 million a year before. But the company was also able to record insurance income of £100 million as its insurance allowed it to recover some of the losses caused by the cyberattack.

The company stressed that it’s “regaining momentum” and how, despite the distraction of recovering from the cyberattack, it accelerated its transformation with investment in priority areas. It opened 15 new or renewed stores in H1 and is planning more than 20 for H2. It also strengthened its technology foundations, something the cyberattack showed was clearly needed.

Divisional performance

In the Food division it’s continuing to outperform the market with three years of consecutive monthly volume growth. But in Fashion, Home & Beauty, “the recovery curve has been slower than Food”. 

That’s understandable given how long the company’s website was unable to take or fulfil orders and the disruption that affect affected its stores. 

But the company said that it’s stronger style credentials mean it’s fashion is “resonating and we continue to leave the market on quality and value”.

While food sales rose 7.8%, Fashion, Home & Beauty sales were down 16.4%. They declined due to the temporary pause in online operations from late April to early June and a gradual recovery over the summer. Home delivery resumed first, followed by click & collect in early August. Store sales were impacted by reduced availability and fewer visits. In physical stores, sales only declined 3.4% but online sales plunged 42.9%, although they’ve been improving more recently.

The lower sales and higher stock management costs led to an operating profit of just £46.1 million and a margin decline to 2.7% from 12%. With warehouse systems now restored, both its website and stores are improving availability, and trading is recovering.

M&S may not necessarily be able to offer a full picture of how Fashion sales would have gone in normal circumstances, but in the unusual circumstances of the first half, it said womenswear sales were led by knitwear, trousers and accessories. Lingerie outperformed with an expanded range of £10 bras driving sales growth from younger customers. Menswear saw success in casual categories and recent momentum in smart outfits including the Autograph performance range. Kidswear lagged the market but Home and Beauty grew in-store sales in bedding and own-label fragrance.

Meanwhile, International sales were down 11.6%. But International “made progress” with the company restructuring franchise agreements and launching new wholesale partnerships, developing the M&S brand in new channels.

The Fashion and International figures were perhaps not as bad as they might have been in the circumstances given the prolonged period of time before the company was able to accept online orders.

Looking ahead

In the second half with its operations just about back to normal, it expects profit to be “at least in line with last year”. This should give it a springboard into the new financial year and set it up for further growth. It said the retail sector is facing significant headwinds with higher costs, but there’s much within its control and accelerating its cost reduction programme will help to mitigate those headwinds.

It added that “it’s all to play for” and it’s confident it will be recovered and back on track by the financial year end.

The company continues to build up both its store estate and its online operations and its goal is to grow to 420 Food stores (which will also be crucial click & collect locations for its Fashion) and to have around 180 full-line stores. Online should continue grow to grow towards 50% of Fashion, Home and beauty sales.

In that category, the company is aiming to grow its market share by at least 1% between 2022/23 and 2027/28 and deliver an ongoing operating margin of over 10%. It believes it has potential over the long-term to double its online sales.