Marks & Spencer profits surge but retailer warns of ‘significant’ cost increases

Retailer defies supply chain chaos but says it will face disruption into next year

Marks & Spencer has increased its annual profits outlook for the second time in less than three months after a sales rebound (Charlotte Ball/PA) (PA Wire)

Marks & Spencer shares jumped as much as 20 per cent on Wednesday as the retailer defied supply chain chaos to post surging profits.

M&S lifted its profits target for the second time in three months but warned it is facing "significant" cost increases as it battles with disruption to global shipping, higher energy prices and labour shortages in supply chains.

The high street chain is being impacted by a lack of lorry drivers, warehouse and factory workers, with problems expected to continue into 2022.

Pressure is growing on food retailers to pay more for produce as farmers’ costs rise further, erasing already tight profit margins.

M&S has hiked pay to attract more staff but said it was well positioned to deal with the challenges. The company also sought to reassure customers that availability would remain strong over Christmas.

Supermarket shelves have looked increasingly bare in the second half of this year but M&S' latest financial results indicate that it has fared better than some of its rivals.

Sales jumped 10.4 per cent in its food business. Clothing and home sales dipped 1 per cent but began to improve in the second quarter. underlying pre-tax profits jumped to £269.4m in the six months to 2 October up 52.8 per cent on two years ago before Covid-19 struck.

M&S has benefited from a rebound consumer demand since reopening its clothing and home stores after lockdowns.

M&S chief executive Steve Rowe said performance had been boosted by a long-term plan to modernise the business, which has struggled for years to adapt to changes in shopping habits.

The "hard yards of driving long-term change are beginning to be borne out in our performance", he said.

"Given the history of M&S we've been clear that we won't overclaim our progress," he said.

While the company has been helped by the wider economic recovery, Mr Rowe also pointed to “headwinds from the pandemic, supply chain and Brexit, some of which will continue into next year”.

He added: "But, thanks to the hard work of our colleagues, it is clear that underlying performance is improving."

Julie Palmer, partner at insolvency firm Begbies Traynor said: "From its joint venture with Ocado, to improving its multi-channel approach to prioritising its online offering, M&S has transformed itself and this is paying off in its results.

“However, with sleigh bells around the corner, all eyes will be on how it performs in the tough Christmas period to come. The retailer has been holding supply chain issues at bay so far but has said that it expects shortages to hit its clothing and homeware ranges and drag into 2022.”