UK food and clothing retailer Mark & Spencer said it now expects annual profits of at least £500million after strong Christmas sales driven by the outperformance of its food range, but also warned of increased inflationary pressure.
The company’s revised guidance is slightly up from a previous profit forecast before tax and adjusted items of around £500m.
Food sales were up 12.4% from pre-pandemic levels two years ago in the 13 weeks to January 1. Clothing and home sales rose 3.2%.
“It is encouraging to see that the larger basket sizes we saw in the first half of the year have continued over the Christmas period, with customers using M&S for a greater proportion of their daily shopping. As a result, M&S has was the fastest growing large in-store food retailer during the period,” said Chief Executive Steve Rowe.
“Food maintained its momentum, outperforming the market over 12 and 24 months. The market continues to be impacted by the headwinds and headwinds we reported in the first half, but I remain encouraged that our transformation plan is now driving improved performance. “
However, the company also said food and apparel was coming under inflationary pressures in food and apparel as it tried to mitigate the impact on customers.
Food market inflation in the food market in the 12 weeks to December was 2.7% and reached 3.5% in the last month of the year, while in clothing and home, consumers have not seen price increases, higher costs for freight and raw materials have been starting to weigh.
M&S had been working with suppliers to improve its value proposition, but it was “inevitable” that some of the inflation entering the market would be passed on, chief financial officer Eoin Tonge said.
Hargreaves Lansdown Equity analyst Laura Hoy said management’s “minimal” earnings forecast would dampen sentiment in the strong third quarter.
“It is possible that this type of sales growth will not be sustained over the coming year, particularly if inflation makes consumers wary. We believe M&S is well positioned at the higher end of the spectrum, but it’s not safe,” she said. .