Overall trading in the first six weeks of the new year has been ahead of the comparable periods in 2021/22, including the period from 12 April 2021 when non-essential retail reopened. It has seen a “particularly strong” performance in Clothing & Home (C&H) and growth in the total Food business continuing to outperform the overall market. But it expects the cost of living crisis to bite in the months ahead.

Looking back at the last year and using the comparison period that ran to 28 March 2020 (because of the distortions caused by the pandemic in the 2020/21 financial year), the company said profit before tax/adjusting items rose to £522.9 million from £403.1 million. Net profit surged to £309 million from £27.4 million.

Revenue on a two-year comparison basis was up 6.9% at £10.885 billion. Most of those sales happened in the UK, but it has been expanding abroad at pace and rather than focusing on stores as in previous expansion phases, it’s been all about adding international websites. International online retail sales were therefore over £250 million vs £100 million in 2019/20.

While its Food division was its strongest, C&H sales were up 3.8% with online growth of 55.6% more than making up for an 11.2% fall in store sales. The “reshaped C&H range and value commitment” delivered full-price sales up 28.5% and C&H e-sales are now 34% of UK C&H sales overall.

During the year, Womenswear drove good growth in the ‘big three’ departments of denim, knitwear and casual tops. “A focus on simple, repeatable styles in dresses, supported by popular collaborations with brands such as Ghost, has resulted in a very strong performance,” it said. And the Goodmove activewear brand has grown to £65 million+ in two years. 

Lingerie saw a recovery in core areas such as sleep, underwear and bras, but Menswear was impacted in the pandemic by its high formal and office-wear mix. Yet it saw saw good growth in jersey, knitwear and underwear.

Kidswear’s increased focus on daywear combined with growth in schoolwear to deliver double-digit growth. It said this “provides an important entry point to the brand for family-age customers”.

We were also told that the business is “well positioned for inflationary headwinds and the next phase of transformation”.

VIEW FROM THE TOP

Steve Rowe said of all this: “When I took over the reins six years ago, I committed to tackling the underlying issues that had eroded the strength of the business and building the foundations for future growth. What is important about these results is not just the restoration of profit and strong cash flow; it is that they demonstrate that M&S has fundamentally changed. 

“While there is much more to do, the business has moved beyond proving its relevance and has the opportunity for substantial future growth. I am delighted to hand the baton on to [the new leadership team of Stuart Machin, Katie Bickerstaffe and Eoin Tonge] to lead the next phase.”

The company has certainly seen lots of change in recent years under Rowe’s guidance and in only the past 12 months, its Food business has gone from among the lowest-performing UK food businesses on like-for-like sales to the top performer.

Meanwhile, “brand perception was weakening and too many customers thought M&S was no longer relevant. Now on almost all customer metrics we see renewed interest and approval,” we’re told.

And in C&H, it previously had high levels of discounting running at around 35%, which has now virtually halved to around 18%.

C&H online capability was also behind competitors and at only around 18% of sales. It’s now “market-competitive and penetration has almost doubled to 34%”.

The company has also refreshed its stores and said the new format is performing well, while it has made its online fulfilment centre more efficient.

WORK IN PROGRESS

Along with other improvements, the retailer has performed a transformation process that some doubted it could achieve. 

But Rowe added: “There remains much to do as we embark on our new ‘shaping the future’ stage and reposition M&S as a growth business focused. There are many areas where the business has improved but three important infrastructure challenges remain which can still impact the pace of change and recovery.”

They include a need to invest further in its core technology systems, notably for C&H “where planning and supply chain systems can be significantly improved to drive more efficient trading”. 

It will invest in both its C&H and Food supply chains and in its store estate, where some stores “remain out of date and poorly located compared to the competition”. More stores will close while new stores will focus on more easily accessible locations. And C&H will have a smaller in-store presence in some cases as more of such sales shift online.

Rowe cited the fact that C&H store sales are running more than 25% below four years ago on just a 10% reduction in space, “so the imperative both to reduce space and to rotate to newer, better stores remains”.

The company is “developing a growing pipeline of store relocations, moving to modern well-located sites, in the renewal format with omnichannel capability. We have a pipeline of c.15 new full-line stores over the next three years and c.40 new Food stores, many in the larger renewal format with click-and-collect services for Clothing & Home”.

It looks like its investment cash will be well spent as the 10 new stores opened last year traded 11% ahead of sales plan and are on track to generate a payback of the net capital invested in just 1.5 years. “New store performance gives us encouragement wherever possible to accelerate rotation,” M&S said.

And it said the international business, “together with our partners, generated 4% retail sales growth. This included a solid performance in the Middle East and online retail sales more than doubling to over £250 million through growth in markets with a store presence and global platforms”.

It added that it has “provided for the £31 million cost of fully exiting Russia and business disruption in Ukraine, and will incur a loss of contribution, [and] we are also exploring multiple opportunities for further growth, including through the Reliance joint venture in India”.