Food sales helps M&S to first profit in four years

By Michael Stones

- Last updated on GMT

M&S food sales helped the business to its first profit in four years
M&S food sales helped the business to its first profit in four years

Related tags Profit Marketing

Rising food sales and new product innovation has helped Marks & Spencer (M&S) post its first full-year rise in profits for four years.

Underlying profit before tax was 6.1% up at £661.2M for the year to March 28, after the upmarket food business reported an “outstanding year in a very difficult market”.

Group sales were up by 0.4% to £10.3bn, as the firm raised its dividend by 5.9% and announced a £150M share buyback programme for 2015/16.

Food sales were up by 3.4%, or up 0.6% on a like-for-like basis. The strategy of becoming more specialist and focusing on quality and innovation continued to deliver results, said the business. M&S claimed to have outperformed the market by about 3.5% and have delivered 22 consecutive quarters of like-for-like growth.

1,700 new products

Over the year, the retailer introduced 1,700 new products; the equivalent to almost a quarter of its range, it said. Launches included its new Taste range of prepared meals and new categories such as frozen meals.

The 62 new Simply Food stores opened during the year were said to have performed ahead of expectations, with gross margin up by 30 basis points (bp). M&S planned to step up new store openings from 200 to 250 in the three years to March 2017. International sales space was expected to grow by about 5%.

Chief executive Marc Bolland said its food business had bucked the market. “We’ve seen strong deflation in food. That’s why I’m so pleased to see profit rise in a difficult trading environment,” ​he told BBC Radio 4’s Today​ programme.

In a statement accompanying the results he added: “We are transforming M&S into a stronger, more agile busines – putting the right infrastructure, capabilities and talent in place to drive our strategic priorities.”

Food business

In the year ahead, M&S predicted its food business would deliver strong sales growth but modest gross margin opportunity. “We expect the UK food market to remain challenging but we are well positioned with a differentiated product offer and a store format that caters for the changes in customer shopping habits,” ​it said.

“Delivery of our new stores will help drive sales growth over the coming year.”

Over the next year M&S expected to complete the final part of its single tier logistics network and GM4 systems, which will bring it closer to achieving its target of becoming a leading international, multichannel retailer, said the business.

It’s short-term priorities remained: food sales growth, general merchandise gross margin improvement, and strong cash generation.

Read more about how M&S food suppliers helped the retailer to its first profit in four years here​.

M&S guidance for 2015/16:

• Food gross margin predicted to grow by 0 to 10bp, due to further operational efficiencies.

• In Food, planned opening of new stores to add about 4.5% of space

• General merchandise gross margin expected to grow by 150bp to 200bp, due to sourcing benefits

• Operating costs expected to increase by about 4%, due to inflation and new food space

• Group capital expenditure expected to be £500M–£550M

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