M&S Reports In-Line Fiscal-Year 2022 Results With Cautious Outlook, Lower Profit Guidance for FY23

Marks & Spencer reported an in-line 2022 full-year set of numbers. U.K. like-for-like sales growth was up 20.5%, driven by both food sales, which were up 10.8% (excluding franchise and hospitality up 14.7%), and the clothing and home division, which rebounded strongly by 48.7%. More important, group operating profit before adjusting items came in at GBP 709 million, of which GBP 608 million was in the U.K. and GBP 73.6 million was in international. Management remains cautious on its outlook, as cost pressures will become progressively steeper in fiscal 2023 because of supply chain disruptions and rising labor costs driving declining real incomes for consumers for at least the remainder of the financial year. In 2023, the business will not receive business rates relief (about GBP 60 million) and M&S' share of Ocado Retail's net income to group results is expected to be minimal (GBP 13.9 million in fiscal 2022) because of capacity investments. As a result, it now expects adjusted profit before tax for the year to start from a lower base (GBP 70 million-GBP 80 million lower than guidance of GBP 500 million adjusted profit). We expect a less constructive backdrop in fiscal 2023 (fiscal year-end: March 2023), as cost pressures from supply chain disruptions and rising labor costs should continue to have an impact on consumer spending patterns, especially for discretionary items. We don't expect to materially alter our fair value estimate for M&S, as lower profit guidance and a softer short- to medium-term outlook should be offset by the time value of money as we roll our model to account for fiscal 2022 results. Shares trade in 4-star territory.