Release Date: November 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Marks & Spencer Group PLC (MAKSF, Financial) reported a 17% increase in profit before tax and adjusting items, reaching GBP407.8 million.
- The food business outperformed the market with an 8.1% sales growth and improved operating margin from 4.1% to 5.1%.
- Clothing and home sales grew by 4.7%, with over 80% of sales at full price in a highly promotional market.
- The company has successfully reduced net debt and increased return on capital employed to 15%.
- Marks & Spencer Group PLC (MAKSF) is making strong progress in its structural cost reduction program, having removed GBP240 million of costs towards a GBP500 million target by FY28.
Negative Points
- International sales were down 10.3%, with significant declines in India and a softer franchise partner order book.
- Operating margin in the international segment reduced to 4.7% due to lower sales and full price mix.
- Online margins in clothing and home declined, despite strong sales growth, due to increased investment in tech infrastructure.
- Store rotation has not progressed as quickly as desired, although new site acquisitions are expected to provide future growth.
- Ocado Retail, while improving, still faces challenges in profitability due to high service delivery and fulfillment costs.
Q & A Highlights
Q: Can you elaborate on the strategic initiatives that are driving growth in the food business?
A: Stuart Machin, CEO, explained that the food business has seen an 8.1% increase in sales, driven by category transformations in areas like confectionery and Indian cuisine, as well as quality upgrades in products such as pizza and fresh sandwiches. The focus on trusted value through pricing strategies and improved availability has enhanced customer perception, contributing to growth.
Q: What are the key factors behind the growth in the clothing and home segment?
A: Stuart Machin highlighted that clothing and home sales grew by 4.7%, with a focus on full-price sales and deeper buys into key lines. The growth was supported by strong online sales, particularly in Q2, and successful collaborations like the one with Sienna Miller. Investments in digital infrastructure have also improved the customer experience.
Q: How is Marks & Spencer addressing the challenges in its international business?
A: Stuart Machin acknowledged the disappointing performance in the international segment, with sales down 10%. The decline was mainly due to issues in India and a softer franchise partner order book. Actions are being taken to reduce stock levels and strengthen leadership, with confidence in medium-term growth opportunities.
Q: What progress has been made in the structural cost reduction program?
A: Jeremy Townsend, CFO, reported that the company has removed around GBP240 million of costs, achieving approximately 50% of the GBP500 million target set for FY28. The savings have been realized predominantly in retail and logistics, and the program remains on track.
Q: Could you provide an update on the performance of Ocado Retail?
A: Stuart Machin noted that Ocado Retail has shown improvement, with revenue increasing by 13.8% and M&S's share of loss reducing. M&S products now represent 30% of the basket, increasing to nearly 50% in fresh categories. However, cost of service delivery and customer fulfillment continue to constrain profitability.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
