CAUTION over forthcoming cost rises and supply disruption arising from shipping attacks in the Red Sea took some of the shine from a strong festive performance by high-street bellwether Marks & Spencer.
Shares in the retail giant fell by around 4% after it warned that it faced additional cost increases from “higher than anticipated wage and business rates related cost inflation”, while highlighting an uncertain outlook for economic growth, amid high interest rates and geopolitical tensions.
It kept its profit expectations for the full year unchanged.
The company followed Next and Sainsbury’s in warning that tensions in the Middle East, where attacks by Houthi rebels have led commercial shipping companies to avoid the Suez Canal and take much longer routes, leading to delivery delays. M&S said the disruption will delay new clothing and home stock due in February and March and could lead to cost rises in this part of its business. Its food arm is not expected to be affected as much.
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Addressing the Red Sea situation, M&S chief executive Stuart Machin said the company is “conscious of the cost and availability of new ranges”, stating that the crisis was “impacting everyone and something we’re very focused on”.
He said: “Our plan is not to increase prices in clothing and home - yes, there may be some cost increases to us from the Red Sea issue, but it's a bit too early to call that out yet.”
M&S offered its view on the outlook after the retailer beat forecasts to report an 8.1% rise in like-for-like sales in the 13 weeks to December 30, making it one of the star retail performers over the Christmas period. Total sales grew by 8.5% rises in total UK sales to £3.57 billion.
Its performance was driven by a 9.9% like-for-like rise in food sales there was also a strong contribution by clothing and home, which saw like-for-like sales climb by 4.8%.
M&S said clothing and home sales were ahead of the market, with less items going into sale. Sales of women’s clothing had been a “standout” and had grown in volume and value terms “significantly ahead of the market”, M&S said, adding that the division had also been boosted by “improved perceptions of style, quality and value”.
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The total value of food sales rose by 10.5% to £2.33bn and clothing and home sales increased by 4.8% to £1.24bn.
The company said that the recent improvement it its trading performance and share price means more than 9,200 staff, most of whom are customer service assistants, are expected to benefit from the vesting of the 2020 employee share save scheme on February 1. It said a colleague saving a typical per month into the scheme will gain over £10,000.
Zoe Gillespie, investment manager at RBC Brewin Dolphin, said: “M&S has built on a strong set of results prior to Christmas with a very good festive period. Sales and market share have both increased across its UK offering, while the indications are that new products and approaches are performing well – future results are likely to be in line with expectations.
“The optimism about M&S is, however, tempered slightly by higher than anticipated labour costs and business rates, while the economic picture in the UK also looks uncertain. Nevertheless, M&S has been on a very strong run and remains well placed to meet the challenges of the next few months head on.”
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M&S said of the outlook: “As we enter the new year and FY25, expectations for economic growth remain uncertain, with consumer and geopolitical risks. We also face additional cost increases from higher than anticipated wage and business rates related cost inflation. Nevertheless, the strong Christmas trading performance provides confidence that the results for the year will be consistent with market expectations.”
Shares in M&S were trading at 266.8p, down 3.9% or 10.9p, at 13.10pm.
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