Clothing and food retailer Marks & Spencer said its turnaround strategy was showing signs of delivery, enabling it to restore its dividend and forecast "modest" revenue growth this year.
After decades of failed turnaround attempts, M&S, under CEO Stuart Machin, is seeking to build a more resilient business with a renewed focus on the quality and value of its clothing and food, heavy investment in technology and e-commerce, and a radical overhaul of its store estate.
The 139-year old company today reported a better-than-expected 7.8% fall in 2022/23 profit.
It said it had made a good start to its new financial year, with both the food and clothing and home divisions 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," M&S said.
M&S said its Irish food business continues to be impacted by Brexit-related costs, addin that it was continuing to seek out ways of improving profitability in that division here.
Shares in M&S have increased 33% so far this year but having closed at 164 pence on Tuesday, they remain well off the 257 pence they were changing hands for in January 2022.
The group said cost headwinds in 2023/24 included over £50m of additional energy costs and more than £100m of extra staff costs. These will be offset by targeted cost savings of £150m.
"Despite facing significant headwinds, we are encouraged by the strong foundations established last year," it said.
M&S has not paid a dividend since its 2019/20 year as part of a move to protect its balance sheet during the pandemic.
It said it plans to restore a modest payment, starting with an interim dividend at the results in November.
For the year to April 1, M&S made a profit before tax and adjusting items of £482m - ahead of analysts' average forecast of £436m but down from the £523m made in 2021/22.
Profit fell in 2022/23 despite an 9.6% rise in revenue to £11.9 billion, due to higher energy and labour costs and unhelpful currency moves.
It was also dented by M&S's exit from Russia, the lack of the prior year's government support on business rates and a share of losses from its online grocery joint venture with Ocado.
Shares in M&S soared 11% to their highest level for over a year today on the better than expected profit outlook.
"M&S looks set to retake its crown in the Coronation year with a c.12% beat for 2022/23 and c.15% implied consensus upgrade for 2023/24," Deutsche Bank analysts said in a note.
Chief Executive Stuart Machin said M&S was being cautious on its profit guidance because it was unclear how much it would need to invest this year to keep prices low for customers.
"What we don't know the answer to is the inflation versus deflation and how much margin we have to invest," he said. "It's early days."
