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M&S warns over mounting supply costs as it ups profits outlook

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Marks & Spencer Store, M&S Christmas
M&S warned over surging costs and disruption due to supply chain issues in the run-up to Christmas. Photo: Michael McNerney/SOPA Images/Sipa USA

Marks & Spencer (MKS.L) said on Wednesday it is raising its forecast as its first-half financial results beat expectations. 

The department store's first-half profit before tax and adjusting items was £269.4m ($364.9m) in the six months to 2 October, compared with analyst forecasts of £205m to 264m.

It made a loss before tax and adjusting items of £17.4m the same time last year.

Stock popped 15.8% in early trade following the report as investors cheered the recovery.

M&S stock rose 15% in early trade following its first-half results. Chart: Yahoo Finance UK
M&S stock rose 15% in early trade following its first-half results. Chart: Yahoo Finance UK

While the prognosis looks good for the chain, it warned over surging costs and disruption due to supply chain issues in the run-up to Christmas. It warned the "significant" supply chain cost bump may continue into the new financial year. 

The group said it expects full-year underlying profits to beat expectations, now guiding for around £500m – having already upgraded its guidance in late August to above £350m.

M&S Food grew around 10% year-on-year while clothing and retail sales were down 1%.

“We expect the strong demand relating both to the bounceback and improved customer perception to be sustained in the near term,” the group said.

“Food continues to be the star performer for M&S, with the Ocado (OCDO.L) partnership now sizzling," said Ross Hindle, analyst at Third Bridge. 

"M&S products already account for 29% of the Ocado basket, and given Ocado’s expansion plans, the growth outlook in this category looks tasty for M&S."

Read more: UK grocery inflation at 14-month high as snacks see price hike

Hindle notes the bright spot is no cover for the 137-year-old group's structural challenges. Clothing and home offerings continue to be a challenge in the market, particularly with regards to drawing in a younger crowd. 

"M&S's proposition continues to draw consumers towards the upper end of the target 35-55 target age range, with the Group unable to shake its "out-dated" fashion label," said Hindle. 

Watch: What is inflation and why is it important?

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