M&S faces ‘gathering storm’ as joint venture with Ocado makes loss | Marks & Spencer

Marks & Spencer has said it faces a “gathering storm”, with next year likely to be more challenging than this after reporting a near 24% fall in profits.

The clothing, food and homewares retailer said sales rose 8.8% to £5.6bn in the six months to 1 October but underlying pre-tax profits sank 23.7% to £205.5m as its Ocado online grocery joint venture fell into the red and it pulled out of Russia.

M&S said it was currently trading well, with clothing sales up 4.2%, food up 3% and international sales up 4.1%.

However, its chair, Archie Norman, said “we are now in the consumer crunch period” and there was also a “cost-of-doing-business crunch” as rising wages, energy and transport costs hit profits. “We all of us have got to run faster up the down escalator,” he said in a presentation to investors.

The retailer said in a statement: “Across all M&S markets it is highly likely that conditions will become more challenging in [the next year]. However, far-reaching changes made over the past few years, together with a reinvigorated product offer and strong value for money credentials provide some insulation from the gathering storm.”

Profits at M&S’s food business dived 42% as the company said it had not passed on the full effect of an 11% increase in the cost of its supplies, while food waste had risen as demand changed over the summer. Sales at Ocado fell 4.2% and it dropped to a £0.7m loss as shoppers returned to high streets.

Clothing and homewares profits soared by just over a third after sales rose by 14% as shoppers returned to stores after last year’s restrictions on trade related to the coronavirus pandemic. Sales of dresses jumped by 50% and men’s suits by more than half, while holiday gear was also popular as the UK returned to socialising and in-person events such as weddings and trips abroad.

The retailer said last month that it wanted to close 25% of its bigger stores selling clothing and homeware while opening more than 100 new Simply Food outlets, with it speeding up a turnaround plan in the face of a “difficult economic backdrop” and rising costs.