“Good underlying profit growth”
Improved Group half year results
- Sales up 1.4%1 to £5.0bn
- Underlying profit before tax2 up 6.1% to £284.0m
- Underlying earnings per share2 up 4.9% to 14.1p
Update on key priorities:
Food business outperforms a highly competitive market
- Sales +3.3%; LFL +0.2%; differentiated offer continues to set us apart
- 32 new Simply Food stores opened, with performance ahead of expectations
General Merchandise gross margin ahead of expectations
- Gross margin up 285bps, full year guidance raised to +200 to 250bps
- Significant sourcing gains
General Merchandise sales slightly down
- Sales -0.4%; LFL -1.2%; unseasonal conditions and decision to focus on full price sales
- M&S.com sales +34.2%; strong improvement across all metrics
Strong cash generation
- Free cash flow before shareholder returns £256.5m, up £189.1m
- Dividend up 6.3% to 6.8p
Marc Bolland, Chief Executive, said:
“We delivered good underlying profit growth in the first half and made strong progress against our key priorities. Our Food business again outperformed the market by over 3% points as our focus on quality and innovation continues to set us apart. In General Merchandise we decided to improve profitability by focusing on gross margin, delivering another significant increase, which in part resulted in slightly lower sales. As a consequence of good performance and strong cash generation we have decided to increase our dividend.”
First half performance summary
Our Food business delivered another strong performance with total sales up 3.3% and like for like sales up 0.2%. Our strategy to focus on quality and innovation continues to deliver results. Gross margin was 25bps lower as a result of a slightly higher level of waste due to unseasonal conditions over the summer. However, full year guidance remains unchanged at 0 to 10bps of growth. Our new store rollout programme remains on track with sales performance ahead of expectations.
General Merchandise gross margin was up 285bps, ahead of our previous guidance of up 150 to 200bps. Unseasonal conditions, together with our decision to focus on full price sales and discount less in the second quarter, impacted performance, with sales 0.4% lower, or 1.2% lower on a like-for-like basis. M&S.com sales were up 34.2% with growth across all key metrics. As a result of higher than planned sourcing gains and lower discounting, we have increased the full year gross margin guidance to up 200 to 250bps.
UK operating costs were up 2.2% in line with expectations and our full year guidance remains unchanged at +4%. Overall, UK operating profit was up 14.6% to £306.2m.
International sales were down 0.9%1 to £506.6m with operating profit down to £24.7m. Performance in our owned markets was significantly impacted by the adverse movement in the Euro exchange rate, while the challenging macro-economic conditions, particularly in our Middle East region, continued to affect the performance of our franchise business.
Group underlying profit before tax was up 6.1% to £284.0m. Non-underlying adjustments to profit were £68.0m net charge (last year £11.8m net credit). Statutory profit before tax was £216.0m (down 22.7%).
We delivered strong cash generation with free cash flow before shareholder returns up £189.1m to £256.5m. In line with our capital allocation policy, we have raised the interim dividend by 6.3% to 6.8p per share. As of 30 October we have bought back 11.6m shares or c.£59.5m of the £150m buyback programme announced in May.
Despite some improvement in consumer confidence, market conditions continue to be challenging in both the UK and the International markets. Our short term priorities remain the same: Food sales growth, GM gross margin improvement, improved GM performance and strong cash generation.
We will update on our third quarter sales on 7 January 2016.
1 On constant currency basis.
2 Underlying results are consistent with how the business is measured internally. Adjustments to derive underlying profit in the current period include net M&S Bank charges incurred in relation to the insurance mis-selling provision and charges incurred for UK and International store reviews.
For further information, please contact:
Majda Rainer: +44 (0)20 8718 1563
Helen Cox: +44 (0)20 8718 8491
Corporate Press Office: +44 (0)20 8718 1919
Investor & Analyst webcast:
Investor and analyst presentation will be held at 9am on 4 November 2015. This presentation can be viewed live on the Marks and Spencer Group plc website on: www.marksandspencer.com/investors
Fixed Income Investor Conference Call:
This will be hosted by Helen Weir, Chief Finance Officer at 2pm on
4 November 2015:
Dial in number: +44 (0)20 3427 1905 Access code: 9634620
A recording of this call will be available until 20 November 2015:
Dial in number: +44 (0)20 3427 0598 Access code: 9634620