M&S shares surge after retailer says ‘encouraging’ sales show turnaround is working
Shares in Marks & Spencer have surged after it bumped up its profit outlook following “encouraging” sales – but admitted stores are still struggling to recover after lockdowns.
The retailer pointed to clothing and home sales – increasingly made online – bouncing back to just below pre-pandemic levels as well as a big boost to food revenues as evidence that its turnaround plan was working.
M&S said the trading performance was likely to reflect pent-up demand and cautioned that “substantial uncertainty” over consumer demand remained while supply chain disruption was putting pressure on costs.
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Cuts announced at M&S will not be the last
“However, assuming no further COVID-related restrictions on trading, at this early stage we expect adjusted profit before tax for the year to be above the upper end of previous guidance of £300-350m,” the retailer said.
Shares rose by as much as 12% following the unscheduled trading update for the 19 weeks to 14 August.
M&S said: “At the start of the year, continued restrictions across large parts of the M&S store portfolio meant that the trading outlook was highly uncertain.
“Since then, M&S has seen an encouraging performance providing confirmation that the transformation programme is on track.”
The profits upgrade provided a rare shaft of optimism for the 137-year-old retailer’s shareholders after years of struggle to arrest its decline and a relegation in 2019 from the FTSE 100.
In its clothing and home division, M&S said it had seen a good recovery with revenue up 92.2% up on a year earlier and just 2.6% below pre-pandemic levels.
M&S said cost-cutting was helping to mitigate the impact of supply chain disruption in its food division
But there was a stark divide between the performance of stores – where sales were 19.8% lower than in 2019 reflecting the fact that “many locations remain in slow recovery from the pandemic” – and online – where they were 61.8% higher and now comprise 35% of all clothing and home revenues.
In May, M&S revealed that it was stepping up store closure plans as it reported a £201m pre-tax loss for the year to 27 March as a result of the pandemic.
The latest update showed food sales up by 10.8% on last year and 9.6% ahead of 2019.
M&S said cost-cutting was helping to mitigate the impact of supply chain disruption as well as increased staff absences – without saying whether this was down to self-isolation alerts.
International revenue was up 39.7% on last year and 5.2% down on pre-pandemic levels despite the impact of lockdowns in India and Brexit-related supply disruptions to Ireland and France – the latter an issue recently raised by chairman Archie Norman in a strongly-worded letter to the prime minister.
Earlier this week, M&S revealed that it has made its products available in over 150 countries for the first time via British Corner Shop, an online supermarket for expats.
One of the world’s largest investment firms has waded into the fight over the future of Thames Water, the water utility which is racing to stay afloat.
Sky News has learnt that KKR is in talks with Thames Water and its advisers about participating in a £3bn share sale which forms part of a wider recapitalisation plan.
City sources said this weekend that KKR, which has more than $550bn of assets under management, was among a handful of parties which had accessed a data room for potential investors.
Rothschild, the investment bank, is running a process to raise around £3bn from the sale of an equity stake in Thames Water, which is grappling with a debt mountain of as much as £19bn.
Other investors which have expressed interest in acquiring newly issued shares in the water company include Carlyle and Castle Water, the latter of which is controlled by Graham Edwards, the Conservative Party treasurer.
Global Infrastructure Partners, which is owned by BlackRock, Brookfield and Isquared are also reported to have lodged an interest, although sources said that the latter two were unlikely to play any further role in the process.
The crisis at Thames Water is presenting Sir Keir Starmer’s administration with a challenge as the debt-laden company attempts to avert temporary nationalisation.
Insiders said that KKR was “a serious player” in the equity process being run by Thames Water, although its outcome hinges on a final determination by Ofwat, the industry regulator, which is due by January at the latest.
Thames Water – and other suppliers across Britain – wants to hike bills and is demanding leniency from Ofwat on fines for past transgressions.
One obstacle to KKR buying a big stake in Thames Water, which has more than 15m customers, may be its 25% holding in Northumbrian Water.
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Under Ofwat’s mergers regime, the Competition and Markets Authority would need to review the deal, although there would not be an automatic prohibition.
The share sale process is being run in parallel to an attempt to raise up to £3bn in debt financing from hedge funds and other investors.
A battle has broken out between the holders of Thames Water’s class A bonds, which account for the bulk of its borrowings, and its riskier class B debt.
Both sets of bondholders have submitted proposals to the company, with the class A’s arguing that theirs is more certain and the class B’s arguing that theirs will save the company £380m or more in fees and interest over a 12-month period.
Thames Water has already endorsed the class A group’s offer, with an initial £1.5bn of funding to be delivered immediately.
The class A bondholders are now trying to secure backing for their proposal within the next fortnight.
Their group, which includes the American hedge funds Elliott Advisers and Silverpoint, would earn in the region of £650m during the first year of the financing.
One area of controversy is likely to be any incentive plan for Thames Water bosses, led by chief executive Chris Weston, as part of a deal to give the company a stay of execution.
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September: Thames Water boss says he can ‘save’ company
Last month, the environment secretary, Steve Reed, established an independent review of the industry that will look at far-reaching reforms.
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It was unclear this weekend which of KKR’s funds was participating in the Thames Water equity-raise.
The firm owns John Laing, an infrastructure investor, which it took private in 2021.
It has also owned South Staffordshire, another water company, selling its 75% interest in 2018.
KKR declined to comment.
The business secretary will next week hold talks with dozens of private sector bosses as the government contends with a significant corporate backlash to Labour’s first fiscal event in nearly 15 years.
Sky News has learnt that executives have been invited to join a conference call on Monday with Jonathan Reynolds, in what will represent his first meaningful engagement with employers since Wednesday’s budget statement.
Rachel Reeves, the chancellor, unsettled financial markets with plans for billions of pounds in extra borrowing, and unnerved business leaders by saying she would raise an additional £25bn annually by hiking their national insurance contributions.
An increase in employer NICs had been trailed by officials in advance of the budget, but the lowering of the threshold to just £5,000 has triggered forecasts of a wave of redundancies and even insolvencies across labour-intensive industries.
Sectors such as retail and hospitality, which employ substantial numbers of part-time workers, have been particularly vocal in their condemnation of the move.
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On Friday, the Financial Times published comments made by the chief executive of Barclays in which he defended Ms Reeves.
“I think they’ve done an admirable job of balancing spending, borrowing and taxation in order to drive the fundamental objective of growth,” CS Venkatakrishnan said.
His was a rare voice among prominent business figures in backing the chancellor, however, with many questioning whether the government had a meaningful plan to grow the economy.
Mr Reynolds held a similar call with business leaders within days of general election victory, and over 100 bosses are understood to have been invited to Monday’s discussion.
A spokesman for the Department for Business and Trade declined to comment ahead of Monday’s call.
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