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M&S shares jump more than 20% on upbeat profit forecast

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Marks and Spencer shares surged more than 20 per cent on Wednesday to their highest level in almost two years after the retailer said full-year profits would beat forecasts.

The UK group said annual profits, before tax and adjusted items, would be in the “region of £500m” as it enjoyed a rebound from pandemic disruption and reaped the rewards of years of restructuring.

The upgrade is the second this year — it said in August that full-year profits would be above the top end of a £300m-£350m range — and follows a period of about two decades when the high-street stalwart was better known for profit warnings.

Chair Archie Norman, the latest in a series of leaders to try to fix the group, has talked of M&S becoming less of an institution and more of a business. He and chief executive Steve Rowe have used the pandemic to accelerate the pace of change as they seek to overhaul the group.

Norman said on Wednesday that it was “nice to be making some money again” while Rowe added that a number of factors had prompted the large upgrade from the August guidance.

He said “a record schoolwear season” and “a bounceback in tailoring” as people returned to work had given the company “more confidence”. Rowe added that sales of autumnwear such as coats and knitwear had been strong and that the company was “working hard to make sure we have the best [Christmas] availability we can”.

Like other retailers, M&S has had to offer additional incentives to recruit lorry drivers and warehouse staff to support peak season trading. “We are well set but it has not been easy,” he noted.

The forecast came as M&S reported an operating profit of £363m in the six months to October 2, ahead of analyst expectations of roughly £350m. That compares with £61.8m in the same period last year — when most of its stores were shut for an extended period due to lockdown — and £270m the year before.

Food sales for the half-year were 10 per cent ahead of the equivalent pre-pandemic period, generating £269m profit. M&S has focused on improving efficiency, cutting waste and reducing the use of price promotions.

The group’s 50 per cent stake in Ocado Retail delivered a £28m net income contribution for the period, and M&S branded groceries account for more than a quarter of the average order placed on Ocado.

Clothing and home sales were 1 per cent lower than in the equivalent period pre-pandemic, but profits were almost 50 per cent higher at £156m. M&S has focused on higher volumes of a smaller range of items in important sectors such as denim and activewear, improving efficiency and selling more items at full price.

Online sales are now 34 per cent of the total, from just over a fifth before the pandemic.

Wednesday’s share price jump comes after a 60 per cent rise over the past year, reflecting both recovery from the pandemic and growing confidence that the company’s restructuring efforts are bearing fruit.

Analyst James Grzinic at Jefferies said the forecast “should result in a healthy 25 per cent upgrade to full-year consensus” and that while there was some uncertainty over household spending, the company’s execution both in stores and online was “a world away from the struggles of the past”.

Despite the better performance, however, M&S said that a return to dividend payments was unlikely this year and Rowe was wary of declaring victory too soon. “We still have a substantial amount to do but most areas of the business are performing well.”

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