M&S says recovery plan boosting sales and profits

Shares in Marks & Spencer have jumped almost 12% after the retail giant issued a surprise profits upgrade thanks to better-than-expected sales.

The chain said while there had been an element of pent-up consumer demand in recent trading, there were signs that its latest turnaround plan was working.

Meanwhile, UK retail sales saw an unexpectedly sharp fall of 2.5% between June and July, official figures showed.

The fall was partly due to weaker food sales following the end of Euro 2020.

However, while the Office for National Statistics (ONS) said sales fell last month to the lowest level since shops reopened in April, they remained 5.8% ahead of pre-pandemic levels.

M&S said its "encouraging performance" had confirmed that its Never The Same Again transformation programme - which has aimed to cut costs and has led to several store closures - was on track.

Revenues from its food business in the 19 weeks to 14 August were up 10.8% on last year and 9.6% higher than in 2019, before the pandemic struck.

It added that its clothing and home business had seen a "good recovery", with revenue up 92.2% from last year and down just 2.6% on 2019.

However, it warned that there remained "substantial uncertainty as to the continued strength of consumer demand, as well as disruption in both supply chains and consequent pressures on costs and margin".

Despite this, M&S said that - assuming there are no further Covid-related restrictions on trading - it expected full-year profits to be "above the upper end of previous guidance of £300-350m".

The news sent shares in M&S up by more than 11% to 158.65p.

The latest retail sales figures from the ONS showed food store sales slipped by 1.5% in July, compared with a 3.9% rise in the previous month when they had been boosted by the Euro 2020 tournament.

Non-food stores reported a 4.4% decline in volumes, with the ONS seeing declines at second-hand goods stores and computer and telecoms equipment stores.

"Following the Euro 2020 related boost in June, retail sales fell in July to their lowest level since shops reopened in April, but still remain well above pre-pandemic levels," said Jonathan Athow, deputy national statistician for economic statistics at the ONS.

"Food sales fell back as further lifting of hospitality restrictions meant consumers had more opportunities to spend outside retail."

He added that heavy rainfall at the start of July had also hit fuel sales, which dipped for the first time since February.

Sales at clothing stores and household stores also fell. The ONS said the only sector to see a rise was department stores, with a 0.2% increase.

Sarah Coles, a personal finance analyst at Hargreaves Lansdown, said July was a "washout for sales".

"While the rain came down, we didn't see the point in getting a new wardrobe, especially with so many people holidaying in the UK this year, so clothing sales didn't get a boost from last-minute swimwear purchases."

She said food was also hit: "In the absence of a decent BBQ season, we gave ourselves a bit of a break from the kitchen, buying less food, and spending more in restaurants and takeaways."

However, Retail Economics boss Richard Lim says there was some demand for new clothes "as the backlog of weddings and other larger social gatherings filled households' calendars, giving shoppers a reason to purchase new outfits".