Marks And Spencer – Inflation Hangs Heavy

Marks and Spencer Group Plc (LON:MKS)’s full year underlying sales rose 6.9% compared to pre-covid levels to £10.9bn. This reflected strong growth in UK Food as well as growth in UK Clothing & Home.

Operating profit rose by £20m to £709.0m compared to 2020, as double-digit increases in UK Food and UK Clothing & Home offset weakness in International and MS Bank and Services.

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M&S expects that inflationary headwinds will negatively impact volumes and drive sales growth lower through the end of the year. So far this year trading has been ahead of comparable periods, but this is expected to worsen as the year progresses. Still, the group plans to increase investment, spending around £400m this year on things like digitization and supply chain efficiency.

Shares were broadly flat following the announcement.

Marks And Spencer's Earnings

Laura Hoy, Equity Analyst at Hargreaves Lansdown:

“Marks And Spencer’s done a good job navigating a large transition amid the backdrop of the pandemic. Results show the group’s efforts to trim costs and focus on digitization are paying off even as shopping habits return to normal. This is most evident in clothing and home, where digital sales are driving growth and app usage has been improving progressively. This was a welcome tailwind given the group suffered from a £5.2m ding to profits due to its exit from Russia.

However, Marks management struck a cautious tone in its guidance for the upcoming year, saying that although its trading beyond pre-pandemic levels at present, this is unlikely to continue. Customers are seeing their incomes stretched by rising inflation and that’s likely to weigh on sales growth moving forward.

Unlike some of its discount peers, Marks’ position as a premium food brand could serve it well through this period of inflation. The group’s shored up its value proposition and that should continue to attract higher income shoppers."

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Updated on May 25, 2022, 2:29 pm

Source valuewalk