Profit down 7.8% at M&S as Irish food business hit by Brexit costs

Marks & Spencer on Wednesday reported a 7.8 per cent fall in annual profit as strong sales growth was offset by inflationary pressures and the impact of Brexit-related costs on the Irish food business.

In Ireland, where M&S in February reported a 3.5 per cent decline in food sales, the retailer said “robust” clothing and homeware sales saw overall sales increase 15.1 per cent in the year.

New import rules and additional paperwork associated with Brexit initially forced the UK retailer to cut 800 product lines in its stores in the Republic, including such items as free-range chicken, orchids or goods containing parmesan reggiano cheese. M&S said it had taken steps to slow the decline, including cost restructuring, increasing the proportion of locally sourced supply and assessing “new routes to market” in the form of a franchise store trial with forecourt retailer Applegreen.

The retail giant said it had taken a £700,000 (€807,000) charge related to “store impairment testing” in Ireland in the year to the end of April, reflecting a decline in the value of its retail assets. M&S carries out this process regularly to identify stores “where the current and anticipated future performance does not support the carrying value of the stores”, it said.

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The wider group took an £18 million (€20.75 million) in impairment testing charges last year but also wrote back £33 million, reversing previous impairment charges, “reflecting improved trading expectations compared to those assumed” previously.

Overall, M&S reported a profit before tax and adjusting items of €482 million – ahead of analysts’ average forecast of £436 million but down from the £523 million reported in its previous financial year. Overall sales climbed 9.6 per cent to £11.9 billion.

The retailer said “significant inflationary cost headwinds” had impacted its margins as it sought to balance higher costs with offering value to its customers.

Across its food business, M&S said it had invested in value by reducing the volume of promotions and becoming “competitive at opening price points” at a time “when customers’ focus is on the cost of living”. It said it had not passed on to customers the full impact of cost inflation across its margins stemming from rising energy and labour costs.

However, M&S said it expected “modest” growth in sales from almost £12 billion the retailer reported for the year to the end of April, as it boosts online sales and revamps stores. The company plans to pay its first dividend in November, after scrapping the payments during the pandemic, according to a statement on Wednesday. – Additional reporting: Bloomberg