City snapshot: M&S profits jump as food sales soar

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Marks & Spencer’s pre-tax profits before adjustments jumped 75% in the first half of the year as it benefited from strong food sales and better than expected consumer sentiment.

Reporting its first half results for the 26 weeks to 30 September 2023, the retailer group saw sales growth of 10.8% to £6.16bn in the period.

M&S said it benefited from “favourable market conditions” amid “surprisingly resilient consumer demand” and the effect of competitor exits from the market.

Overall growth was largely driven by a jump in food sales, which grew 14.7% with LFL sales up 11.7%, outperforming all mainline grocers on volume as customer numbers increased.

M&S said grocery growth was underpinned by further investment in trusted value, category resets in basket building areas such as grocery and homecare, and ongoing quality upgrades of products in key customer missions.

Its food adjusted operating margin also recovered to 4.3% from 2.2% last year, driven by growth in volume and market shar as well manufacturing efficiencies.

Clothing & Home sales also grew 5.7% with LFL sales up 5.5%, supported by more confident buying and further improvements in style perceptions.

Customer numbers increased, and sales grew across channels, with stores outperforming online. Adjusted operating margin increased to 12.1% from 9.8% last year supported by a modest increase in full price sales mix to 82%, cost reduction in the logistics network and better currency and freight rates than anticipated.

Its Ocado Retail joint venture saw sales increase by 6.9%, with active customers increasing, supported by the ‘Big Price Drop’ campaign and an increase in the M&S range available on Ocado.com.

The M&S share of Ocado Retail net loss increased to £23.4m from £0.7m, driven by the continued effect of costs related to new and excess capacity, plus the one-off accrual release in the prior year result.

The group’s international sales increased 3.9% at constant currency, with more modest partner demand following restocking last year.

Improvement in core margin performance saw profit before tax and adjusting items for the period jump 75.3% to £360.2m from £205.5m.

Adjusting items of £34.6m, including a credit due to the remeasurement of payments owed for its acquisition of 50% of Ocado Retail, meant statutory profit before tax was £325.6m, up from £208.5m.

Despite the strong performance, M&S declined to upgrade full year earnings expectations, noting that “we are not relying on the favourable recent market conditions persisting”.

“The outlook remains uncertain with the probable impact on the consumer of the highest interest rates in 20 years, deflation, geopolitical events, and erratic weather,” it said.

Therefore, against more challenging comparatives, the group expects profit before tax and adjusting items to be weighted towards the first half “as we remain laser-focused on our long-term ambition to reshape M&S for future growth”.

CEO Stuart Machin commented: “Our strategy to reshape M&S for growth has delivered strong results in the first half. We have maintained our relentless focus on trusted value, giving our customers exceptional quality product at the best possible price.

“In Food, we delivered over 500 quality upgrades and invested over £30m in price, lowering the price of 200 products and locking prices on 150 customer favourites. Our lead on quality perception widened and value perception continued to improve. In Clothing & Home we backed lines with authority across core and seasonal product, maintaining our lead on quality and value perception and improving our style credentials. As a result, we’ve sold more product and served more customers across Food and Clothing & Home, with both businesses outperforming the market.

“Sales growth was supported by our investment in store rotation, which continued at pace. Three full line stores opened and six were renewed, all attracting new customers and performing ahead of plan. Our cost reduction programme is on track with over £100m savings delivered in the half and investment in supply chain modernisation driving efficiencies, translating volume growth to improved margin and profitability.

“I am clear that if we serve our customers well, we serve our shareholders well, and our unrelenting focus on trusted value is matched by disciplined capital allocation. We have further strengthened our balance sheet and net debt position, with an interim dividend payment being made to shareholders for the first time in four years.

“Looking ahead, trading momentum has been maintained through October, with customers responding positively to our Christmas ranges. There will be challenges and headwinds in the year ahead and progress won’t be linear, but we are ambitious for future growth and are driving what is in our control.

“Everyone at M&S makes change happen and I want to thank my colleagues for their contribution to these results. I also want to thank them in advance for what they are about to do. All of us will be sleeves rolled up, out in stores and distribution centres, bringing the magic of M&S alive for our customers this Christmas. In summary – we’re only just beginning. Lots done, lots to do, lots of opportunity.”

M&S shares have jumped 10% in early trading to 247.6p.

Morning update

Ahold Delhaize has announced it has entered into an agreement to sell its US FreshDirect business to ultrafast delivery group Getir.

The supermarket group said that, following a thorough review, Ahold Delhaize USA made the decision to sell the FreshDirect business to focus investments in its Omnichannel businesses.

“This was a difficult decision, especially given FreshDirect’s rich history in the New York City area,” said JJ Fleeman, CEO, Ahold Delhaize USA. “However, our strength as a grocery retailer in the US is the true omnichannel experience – a combination of online and in-store – where we have leading brands and market share, strong store density and online presence, and a deep heritage of customer loyalty and relationships. With this decision, we will increase our focus on omnichannel – our biggest growth opportunity.”

It said there are no changes for FreshDirect customers as a result of the transaction.

“We are proud of the positive impact FreshDirect has had in the online grocery space, raising the bar in offering the best in-season selection of locally sourced goods,” added Fleeman. “In the coming weeks, we are committed to supporting a smooth transition for FreshDirect’s valued employees, customers, partners and communities, who have been loyal to the brand over the past 20 years, so that FreshDirect will be well positioned to continue as an integral part of New York’s food culture under Getir’s ownership.”

Headquartered in the Bronx and serving the greater New York tri-state area, FreshDirect has 3,200 employees.

Founded in New York City in 2002, FreshDirect was acquired by Ahold Delhaize USA in January 2021.

Meanwhile Ahold Delhaize has issued its third quarter results, with comparable sales excluding gas increasing by 3.1%.

Growth slowed to 0.9% in the US, while it was 7% in Europe.

It said that increased market share in key markets “reflects strong customer loyalty to our locally tailored customer value propositions”.

Q3 Group net sales were €21.9bn, up 2.9% at constant exchange rates and down 2.1% at actual exchange rates.

The quarter’s underlying operating margin was 3.8%, a decrease of 0.6 percentage points, reflecting a decline in the US margin due to higher operating costs.

For 2023, the company now expects free cash flow in a range of €2.2bn to €2.4bn (previously a range from €2bn to €2.2bn), while it reiterated expectations for underlying operating margin of over 4.0%.

Frans Muller, president and CEO of Ahold Delhaize, said: “During these times of heightened human suffering around the world, I am proud of our associates for their hard work and unwavering commitment to supporting their local communities. Inflation, increasing interest rates and changes in US government support remain tangible headwinds and are creating anxiety for many customers.

“Our great local brands have been agile in expanding their assortments with high-quality own-brand products at great prices and swift to pass on price reductions where possible. They continue to invest in and leverage the power of our digital capabilities to provide customers with meaningful, highly personalised discounts tailored to their needs and wallets.

“As a result, customers continue to place their trust in our brands, which is clearly reflected in positive market share growth.

“In the US, excluding the impact of weather and calendar shifts, comparable sales grew by 1.0%. The reduction in emergency federal Supplemental Nutrition Assistance Program (SNAP) benefits, higher interest rates and the resumption of student loan repayments in October continue to weigh on customer sentiment. While we were able to offset a large portion of this headwind through our strong value propositions and ongoing momentum in online sales, the dilutive impact of a changing sales mix and increasing shrink contributed to slightly lower-than-expected US margins. With the help of measures we are putting in place through our Accelerate initiatives, in-store actions to reduce shrink and further volume support incentives from vendors, we expect this modest margin pressure to be transitory and pass in a couple of quarters.

“When looking at Europe, which has endured more pressure in the last two years than the US, I am confident we are on the path to recovery. While inflation is also moderating in Europe, our major efforts to elevate and harmonize our customer value proposition accelerated comparable sales growth to 7% in the quarter.”

Elsewhere, Tate & Lyle has announced the appointment of David Hearn as a director and chair of the board of from 1 January 2024.

Hearn is a highly experienced Chair both of listed companies and privately owned businesses. He currently serves as Chair of Safestore Holdings and is also Chair of The A2 Milk Company, a company listed on the New Zealand and Australian Stock Exchanges, a position he will step down from on 16 November 2023.

In a career spanning more than 40 years, he has held senior roles in a number of global businesses, including in the food and beverage industry with Del Monte, PepsiCo and United Biscuits.

He served as CEO of Goodman Fielder, a listed Australian food business, from 1995 to 2001 and also as CEO of Cordiant Group in the US from 2001 to 2003.

In 2005, he was appointed CEO of Committed Capital, an international private equity and advisory firm based in London and Sydney, for whom he acted as chair of a wide range of portfolio businesses over a 12-year period.

He will succeed Warren Tucker, who has been interim chair since 1 September 2023 and who will continue to serve as a non-executive director and chair of the audit committee after he steps down as interim chair.

Tucker said: “David’s breadth of experience, skills and knowledge, particularly of the food industry, will complement and further strengthen Tate & Lyle’s board. I look forward to working closely with him to ensure a smooth handover during the coming weeks.”

Hearn added: “I am delighted to take on the role of chair of Tate & Lyle at what is an exciting time for the business. Tate & Lyle is a business with a deep sense of purpose, in a strong financial position, which puts its customers at the heart of everything it does. I look forward to working with the Board, Nick Hampton and the leadership team to deliver on the Company’s growth agenda.”

On the markets this morning the FTSE 100 is up 0.1% to 7,420.7pts.

Along with M&S, early risers include McBride, up 4.1% to 48.5p, Associated British Foods, up 2.8% to 2,313p and Nichols, up 1.9% to 937.5p.

Fallers include DS Smith, down 1.2% to 288.9p, PayPoint, down 0.7% to 541p and Just Eat Takeaway.com, down 0.4% to 1,113p.

Yesterday in the City

The FTSE 100 closed down 0.1% yesterday at 7,410pts.

Associated British Foods was boosted by the strong performance of Primark and improved grocery and sugar sales to close 6.8% up at 2,250p.

Naked Wines dropped 35.8% back to 28.9p yesterday as it issued its second profits warning in recent months and announced the departure of its CEO.

The day’s risers included Virgin Wines, up 5.7% to 37p, Hilton Food Group, up 4.3% to 674p, Ocado, up 3.8% to 550.2p, McBride, up 3.6% to 45.6p, Marks & Spencer, up 2.8% to 225.2p and Just Eat Takeaway.com, up 2.8% to 1,117p and Deliveroo, up 2% to 139.5p.

Fallers included Kerry Group, down 3.3% to €74.00, Glanbia, down 2.3% to €15.00, PayPoint, down 1.8% to 545p and Bakkavor, down 1.2% to 84.8p.