Marks & Spencer saw strong sales within its clothing and home departments in the Republic in the six months to the start of October but reported continued “substantial costs and disruption” related to Brexit within its food operations. The British retailer warned on Wednesday of a “gathering storm” of higher costs and pressure on household budgets and reiterated that group full-year profits would fall.
The 138-year old business reported a 24 per cent decline in profit before tax and adjusting items to £205.5 million (€234 million) for the six months – slightly ahead of analysts’ average forecast. Profits fell, despite an 8.5 per cent rise in revenue to £5.54 billion, due to higher costs.
Marks & Spencer said its business in the State “generated a strong sales performance in Clothing & Home, but the Food business continued to be impacted by substantial costs and disruption related to EU border processes”. The company has been investing in automation and substitution with Irish-based products to mitigate “some of these costs”, it said, with the benefit of these efforts to come “in time”.
It also noted its agreement with Applegreen to trial “shop-in-shop” food sales in five of the roadside retailer’s outlets in the Republic.
The retailer retains long-term concerns about Brexit issues, however, citing “EU border challenges” as a principal risk to its overall business.
“A failure to continue managing the cost consequences and operational friction from the complexity of border arrangements between the UK and the European Union (EU) or further developments in the Trade and Co-operation Agreement ... including the Northern Ireland Protocol, could have a significant and long-term impact on our Irish business and overall trading performance,” it noted.
Within the group, where shares have halved this year, total food sales increased 5.6 per cent in the first half, while clothing and home sales rose 14 per cent.
“Across all M&S markets it is highly likely that conditions will become more challenging in FY24,” the company said.
“However, the 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.”
It said trading in the first four weeks of its second half was in line with forecasts, with clothing and home sales up 4.2 per cent, food sales up 3 per cent and international sales up 4.1 per cent.
As inflation soars across both the Republic and the UK, Marks & Spencer reckons its bias towards older, more affluent customers gives it some protection from the crisis, but analysts are still concerned they will feel the pinch, with both its food and clothing divisions at risk of shoppers heading to cheaper rivals. – Additional reporting: Reuters