Marks and Spencer Group Plc
Full Year Results for 52 Weeks Ended 1 April 2023
“M&S DELIVERS STRONG RESULTS AS IT RESHAPES FOR GROWTH”
Strong trading results
· Proï¬t before tax & adjusting items of £482.0m (2021/22: £522.9m, including £59.8m UK business rates relief)
· Statutory profit before tax of £475.7m (2021/22: £391.7m)
· Clothing & Home sales1 up 11.5% to £3.72bn; Store sales up 14.9%, online up 4.8%; Strong growth in Click & Collect
· Clothing & Home adjusted operating profit £323.8m (2021/22: £330.7m, including £35.2m rates relief)
· Food sales up 8.7% to £7.22bn. Strong growth across core categories, hospitality and franchise
· Food adjusted operating profit £248.0m (2021/22: £277.8m, including £24.6m rates relief)
· Ocado Retail share of loss £29.5m (2021/22: share of profit £13.9m); capacity for future growth
· International constant currency sales up 11.2%; adjusted operating profit £84.8m (2021/22: £73.6m)
Reshaping M&S to deliver long term growth
· Clothing & Home delivering improved style perceptions and a sustained leading value position
· Food volume outperforms market; reflecting product innovation and value investment
· Ocado Retail reset underway; restoring leading service credentials and deeper collaboration with M&S
· Structural cost reduction programme delivering; over £150m of savings planned for FY24
· Accelerating store rotation; 8 full-line and 10 Food stores opening in FY24
· Progress on supply chain modernisation; Gist acquisition completed, integration on track
· Robust balance sheet and cashflow; maintained investment grade metrics; further bond repurchase announced
· Plan to restore dividend in FY24
Stuart Machin, Chief Executive said:
“One year in, our strategy to reshape M&S for growth has driven sustained trading momentum, with both businesses continuing to grow sales and market share. Our Food and Clothing & Home businesses invested in value to protect customers from the full force of inflation which, whilst impacting margin, was the right thing to do, as serving our customers well is the only route to delivering for our shareholders.
Food outperformed the market, with customer perception for quality and value the highest in six years. The benefits of the Gist acquisition and operational efficiencies also supported an improved performance in the second half. Clothing & Home retained market-leading value perception, and its style credentials continue to improve. Sales were up in store and online, supported by growth in Click and Collect sales, active App users and Sparks loyalty membership; demonstrating the emerging power of our omni-channel model. The store rotation and renewal programme delivered strong sales uplifts and will accelerate this year, including the opening of five brand defining full-line stores in major cities. Our disciplined approach to capital allocation means we can invest for growth, while further reducing net debt and maintaining investment grade credit metrics, and we plan to resume dividend payments at our interim results.
M&S is such a special business with so much potential, and I want to thank all of my colleagues for their contribution to these results. Delivering performance and driving change is everyone’s responsibility at M&S, and they have done a remarkable job. Despite facing significant headwinds, I am encouraged by the strong foundations established last year and excited about what we can achieve in the year ahead.”
| Group Results (52 weeks ended) | 1 April 23 | 2 April 22 | Change (%) |
| Statutory revenue | £11,931.3m | £10,885.1m | 9.6 |
| Sales1 | £11,988.0m | £10,909.0m | 9.9 |
| Operating proï¬t before adjusting items | £626.6m | £709.0m | -11.6 |
| Proï¬t before tax and adjusting items | £482.0m | £522.9m | -7.8 |
| Adjusting items | £(6.3)m | £(131.2)m | -95.2 |
| Profit before tax | £475.7m | £391.7m | 21.4 |
| Profit after tax | £364.5m | £309.0m | 18.0 |
| Basic earnings per share | 18.5p | 15.7p | 17.8 |
| Adjusted basic earnings per share | 18.1p | 21.7p | -16.6 |
| Free cash flow from operations | £170.4m | £739.6m | |
| Net debt | £2.64bn | £2.70bn | |
| Net debt excluding lease liabilities | £355.6m | £420.1m |
Non-GAAP measures and alternative proï¬t measures (APMs) are discussed within this release. A glossary and reconciliation to statutory measures is provided at the end. Adjusted results are consistent with how business performance is measured internally and presented to aid comparability. Refer to adjusting items table below for further details. 1 References to ‘sales’ throughout this announcement are statutory revenue plus the gross value of consignment sales ex. VAT.
STRONG TRADING RESULTS
M&S delivered strong results in 2022/23 despite significant inflationary cost headwinds impacting margins, reflecting the benefits of its programme to reshape for growth. Profit before tax and adjusting items for the period was £482.0m (2021/22: £522.9m). Statutory profit before tax was £475.7m (2021/22 £391.7m). Prior year results included £59.8m of UK business rates relief and a net rates charge of £139.7m compared with a net rates charge of £186.6m in 2022/23.
· Clothing & Home grew sales 11.5% with LFL sales up 11.2% driven by a more confident approach to buying and a focus on the modern mainstream customer, which is starting to drive better style perceptions. While store sales outperformed, online sales were also up, with growth in Click and Collect sales, active App users and Sparks loyalty membership. Volume and value market shares increased.
· Food grew sales 8.7% with LFL sales up 5.4%, outperforming the market in volume and value terms with broadened appeal, through focused product development and investment in trusted value. While investment in value reduced margin, the positive customer response supported the delivery of improved trading performance in the second half. Margin in the second half also benefitted from the acquisition of Gist.
· International sales were up 11.2% at constant currency, driven by demand for clothing from global partners. As a result, profits recovered despite the combined impacts of the exit from Russia and on-going EU border related costs.
· Ocado Retail sales were down 1.2%. While active customers grew, revenues reflected reduced volumes as a result of lower shopping frequency post-pandemic. Profitability was impacted by the effects of higher fixed costs from under-utilised capacity, the impact of which we are working together to reduce, as we build customer numbers over time.
RESHAPING M&S TO DELIVER LONG TERM GROWTH
M&S has a heritage of quality, style, innovation and value for money, recently resulting in it being voted the UK’s most trusted brand (source: YouGov). After a number of years of substantial change and investment, a strengthening omni-channel position in Clothing & Home and the broader reach of Food including through the Ocado Retail joint venture, provide opportunities for profitable growth.
During the year, the new leadership team, Stuart Machin, CEO, supported by Katie Bickerstaffe as his Co-CEO, set out their priorities to deliver sustainable growth. To support implementation of the plan, Stuart appointed Jeremy Townsend to the team as CFO in January 2023, and he will remain with the business until May 2025.
This statement reports delivery against this plan, setting out how these priorities will deliver profitable sales growth, improve operating margins, provide investment choices and drive shareholder returns. The nine priorities are set out in more detail below.
1. Developing exceptional product worthy of a trusted brand, through investment in great tasting, value for money, quality Food, and developing stylish, great value, quality Clothing and Home ranges.
2. Driving omni-channel growth. Increasing the participation of Clothing & Home online sales, through leveraging the national store and distribution network, to offer a convenient and consistent service however and wherever customers choose to shop. And growing utilisation of Ocado Retail’s capacity, by providing superior service, market-leading choice and M&S products.
3. Capitalising on the strength of the M&S brand to grow global sales through capital light partnerships and the development of a multi-platform online business.
4. Making £400m of structural cost savings over five years, reducing cost to serve, and growing our margins through technology improvements to increase retail and supply chain efficiency and simplified and streamlined digital, technology and support centre functions.
5. Creating a high-performance culture. A simpler, faster, delivery focused business which is passionate about M&S products, puts the customer first and has the digital skill set to make fast, informed decisions.
6. Accelerating store rotation and renewal to create a more productive estate of c.180 full-line stores and opening more than 100 new Food stores positioned in growth locations, which support omni-channel retailing.
7. Modernising the supply chain to improve availability and customer service, while reducing costs and working capital.
8. Creating a more engaging and connected customer experience to drive omni-channel growth. This brings together the Sparks loyalty programme and payment options, supported by an effective and more efficient technology infrastructure.
9. Disciplined capital allocation, to strengthen the balance sheet, reinstate an investment grade rating for our debt and restore dividends. Robust liquidity and balance sheet metrics allow for a further bond repurchase exercise of c.£225m in respect of our medium-term maturities, also announced today.
OUTLOOK AND GUIDANCE
M&S has had a good start to the new financial year, with both Food and Clothing & Home growing sales. While the economic outlook for consumer spending is uncertain, cost inflation remains high, and market conditions are expected to become more challenging, the strategy is beginning to deliver improved performance and there remains much within the Group’s control.
In FY24, modest growth is expected in revenues, driven by omni-channel as well as from the benefits of the accelerating store rotation plan. Further investment in quality and trusted value will be partly offset by actions to mitigate sourcing cost pressures and to reduce waste and stock loss.
Cost inflation includes over £50m of energy costs as well as colleague pay increases of more than £100m, which are expected to be offset by the delivery of over £150m of in-year savings from the structural cost reduction programme. This gives scope to invest in customer service and digital development, while controlling costs.
Despite facing significant headwinds, we are encouraged by the strong foundations established last year.
DIVIDEND
The Group suspended dividend payments at the start of the pandemic to protect the balance sheet. This enabled it to invest in its transformation priorities and trusted value. With the business generating an improved operating performance and having a strengthened balance sheet with credit metrics consistent with investment grade, the Board plans to restore a modest annual dividend to shareholders, starting with an interim dividend at the results in November.
DELIVERING PROFITABLE SALES GROWTH
M&S’ goal is to deliver profitable long-term sales growth through developing exceptional product and a trusted brand, offering a leading omni-channel retail experience including through Ocado Retail and expanding the global reach of the business.
FOOD OUTPERFORMS DUE TO INVESTMENT IN INNOVATION AND TRUSTED VALUE
The objective for Food is to achieve 1% growth in market share and an adjusted operating margin of c.4% over the next five years. This will be delivered through ‘protecting the M&S magic’ of trusted value and innovation in fresh, easy-to-cook food, while fixing the backbone processes of the supply chain and driving growth in the store estate.
Food grew sales 8.7% to £7.22bn with LFL sales up 5.4%, with particularly good growth in hospitality and franchise. Sales in core categories were up c.5.0% and well ahead of pre-Covid levels, reflecting the strategy to broaden appeal. Grocery market share increased 20bps to 3.6%, with M&S outperforming all major full-line supermarkets. (source: Kantar 52 w/e 19 March 2023).
Operating profit before adjusting items of £248.0m compared with £277.8m in the prior year (which included £24.6m of business rates relief), resulting in a net adjusted operating margin of 3.4%.
While investment in value reduced margin in the first half, as we did not pass through the full impact of cost inflation to customers, the resulting positive effect on customer volumes drove sales. Combined with an in-year contribution to operating profit from the Gist acquisition of £27m, this enabled an increase in second half adjusted operating margin to 4.5%, compared with 3.8% last year.
Growth underpinned by investment in trusted value: In recent years, Food has shifted to trusted value to broaden appeal, reducing the volume of promotions and become competitive at opening price points. At a time when customers’ focus is on the cost of living, further investment was made early in the year, which meant that the business did not pass through the full impact of cost inflation on its margins. This included:
· Sharpening the prices of over 100 ‘Remarksable value’ lines which offer M&S quality at everyday prices, implementing ‘locked prices’ across a range of c.150 everyday family favourites and moving the iconic ‘Dine-In’ offer to ‘Always On’ – offering an affordable, restaurant-quality alternative to eating out; and
· As a result, the mix of value lines increased. For instance, Remarksable sales were up 40%, and featured in over c.20% of customer baskets. Dine-In launches such as ‘steak and chips’ also drove substantial sales growth in the offer.
Performance fuelled by innovation and investment in basket building categories: The innovation pipeline helped to increase sales of fresh categories across the year and ambient products over Christmas, Valentine’s and Mother’s Day when event sales grew by an estimated 20%. Product launches included:
· A programme of quality upgrades with M&S winning c.200 ‘tried and tested’ awards from titles such as Good Housekeeping. For instance, the introduction of Oakhamâ„¢ Gold chicken means that all the fresh chicken sold is now slower-reared, British and RSPCA Assured;
· Strong seasonal launches such as the ‘master grill’ range for summer barbeques and Limited Editions for key events; and
· Reset and relaunched ranges aimed at driving market share in larger baskets including soft drinks, household cleaning, frozen desserts, and cereals.
Quality and value perceptions highest in six years: M&S continues to generate market-leading quality and sustainability perceptions in Food, while the continued strategy of investment in trusted value has driven improved perceptions of value.
CLOTHING & HOME DELIVERING IMPROVED STYLE PERCEPTIONS AND SUSTAINING LEADING VALUE POSITION
The objective for Clothing & Home is to deliver a 1% increase in market share and an adjusted operating margin of c.10% over the next five years, by driving omni-channel growth of a stylish, quality, value for money M&S range, alongside a family of partner brands.
Clothing & Home grew sales 11.5% to £3.72bn with LFL sales up 11.2%. Full price sell-through at 88% was level with last year and well above historical levels. Clothing & Footwear market share increased 30bps to 9.3%. (source: Kantar 52 w/e 2 April 2023)
Store sales increased 14.9% to £2.5bn with strength in city centre and shopping centre locations. Online grew 4.8% to £1.2bn, with strong growth in Click and Collect sales, which were up c.20%, with more than one third of orders now generated through the M&S App.
Operating profit before adjusting items of £323.8m compared with £330.7m in the prior year (which included £35.2m of business rates relief), an increase of 9.6% excluding the impact of business rates. Adjusted operating margin of 8.7% is now c.170bps above 2019/20. Overall results reflected the leverage from sales growth offsetting cost pressures, particularly from sourcing and currency as we did not pass through the full impact of cost inflation to customers and from planned digital investments.
Style credentials improving with more confident buying: A more confident approach to buying, and focus on the modern mainstream customer, is starting to deliver increased value for money and style perceptions.
· Clothing & Home has focused on buying more deeply into core lines, and offering clearer price points and better availability. For instance, women’s denim sales have grown over several years, cementing M&S’ leading market share in the category, which has increased to 13% from less than 10% two years ago.
· Greater investment has been made into categories which drive style perception. For example, casual dress sales grew 40% in 2022/23. As the strength of demand became apparent, increased purchases of popular lines were made using short lead-time supply routes, meeting demand while managing markdown risk.
· The improved range is supported by digital analytics to assess profitability per option more accurately. In addition, availability is being measured and stock is being allocated on a demand weighted basis.
Strong performance of event related categories: In a year when customers were making the most of the return of events, weddings and holidays, growth was generated in top end ‘Autograph’ sales while making further progress in casual wear.
· Men’s ‘Autograph’ sales increased c.60% while chino sales increased c.25%, reflecting the strategy to build a “smart separates” business for workwear. A focus in the current year is on the introduction of more regular newness.
· Kidswear and Home offer important potential for improvement in market share. However, growth in the year was modest, in a more difficult market, against pandemic related comparatives. Having established a stronger value position, the aim is to build increased awareness and appeal of the range. For instance, partnerships such as Fired Earth are being expanded across more categories.
Sustained, market leading value perception: As a result of improvements to the range, and investment in trusted value, we have held leading value perception ratings in recent years, alongside Clothing & Home’s lead for quality and sustainability. Encouragingly, style perception is also now improving.