Marks and Spencer Group H1 25/26 Earnings Report

Marks and Spencer Group EPS Results

• Actual EPS: GBX 6.60
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Marks and Spencer Group Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Marks and Spencer Group Announcement Details

• Quarter: H1 25/26
• Date: 11/5/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, November 5, 2025
• Conference Call Time: 2:30AM ET

M&S has a heritage of quality, innovation and value for money and has been voted the UK’s most trusted brand. From these foundations, M&S is reshaping for sustainable profitable growth and value creation. We operate as a family of businesses, selling high-quality, great-value, own-brand products and services, alongside a carefully selected range of third-party brands. We do this through a network of stores and websites globally, and together, across our stores, support centres, warehouses and supply chain, our 65,000 colleagues serve over 30 million customers each year.

Marks and Spencer Group H1 25/26 Earnings Call Transcript

Key Takeaways

• Negative Sentiment: The cyber incident drove a roughly £324m trading hit (group adjusted PBT £184.1m, down £229m) despite receiving £100m of insurance, and caused a H1 operating cash outflow of £193m though the group remained net funds pre‑leases (£176m).
• Positive Sentiment: Food performed strongly with 7.8% value growth and 2.8% volume growth, systems are restored, waste metrics improving, and management sees long‑term potential to materially grow food sales while expanding the store pipeline.
• Negative Sentiment: Fashion, Home & Beauty was hit hardest—sales fell 16.4% (online down ~43% during the outage) and operating margin fell to 2.7% from 12%, with recovery underway as stock and website systems are reinstated.
• Neutral Sentiment: Ocado Retail is now fully consolidated (adding ~20% to group sales); Ocado Retail had a small £3m loss but showed sales momentum and CFC efficiency gains, while consolidation added leases and increased reported net debt to ~£2.5bn including leases.
• Positive Sentiment: Management raised the structural cost‑savings target to £600m by FY2028 (£34m delivered in H1), will pay an increased interim dividend, and expects H2 profit at least in line with last year as incident effects continue to unwind.

Presentation

[Archie Norman, Chairman at Marks & Spencer]

Hello everybody, and welcome to the 2025-26 Marks & Spencer Interim Results. Stuart is going to talk about the performance of the business. Alison will go through financial detail. Then Stuart will come on to talk about the outlook. I think it's unusually important this time that I just say a few words at the beginning to thank all our colleagues in the business for the incredible hard work over what's been a very stressful six months, especially colleagues on the front line working without systems in the stores, dealing with customer queries. Obviously, our store managers have been magnificent. Our leadership team who've worked flat out, and also our technology team who've worked so hard to bring back our systems. So it has been a frustrating period. I want to thank the shareholders who have actually been remarkably stoic throughout and perceptive, and of course our customers.

[Archie Norman, Chairman at Marks & Spencer]

I never ask for sympathy from anybody, but it has been a period where people have been generous and kind to us and supported us through a pretty tough period. So thank you everybody. In an instant media world, people think that you turn your systems off and then you turn them back on again. So what's the issue about? But in reality, things just aren't quite like that. You have to rebuild your systems in a safe environment. And of course, people forget, but we rely on data to power the business nowadays. The good news is that we're very confident that we'll be 100% back by the year-end, and every week that passes, we're seeing some improvement. And through all of this, our commitment to and ambition for the shareholder value creation thesis that underpins our strategy, the reshaping for growth, that ambition is undimmed.

[Archie Norman, Chairman at Marks & Spencer]

We're more confident than ever, and if anything, we've been able to take some steps during the interim to move even faster and come back differently. So we end the half with a spring in our step. We're ambitious and optimistic for the future. When I come to talk to you at the year-end, I hope it'll be a very different type of conversation, and meanwhile, we are looking forward to a wonderful Christmas, and I very much hope you are too. Thank you.

[Stuart Machin, CEO at Marks & Spencer]

Thank you, Archie. Well, good morning and welcome to our Interim Results presentation. If you're watching on Wednesday, the 5th of November, there will be a conference call for analysts and investors at 9:30 A.M. when Alison and I will be available to answer your questions. There are four parts to today's presentation. First, I will start by updating you on our headline performance, what's happened in the half, and where we are today. Alison, our CFO, will talk to you and walk you through the financials in detail. I will then give some perspective on our progress to reshape M&S across our whole business. Before closing, with a view of the outlook for this financial year. The first half of this year was an extraordinary moment in time for M&S, but I don't intend to go over old ground today.

[Stuart Machin, CEO at Marks & Spencer]

Everything regarding the incident has been well documented, and we're now getting back on track. However, I will say that our customers have been absolutely fantastic as always, and I want to thank them again for their continued support and loyalty during the period. I would also like to thank our supply partners and, of course, our colleagues across the whole of M&S who have showed real grit and determination to get us back on track. This support, together with the underlying strength of our business, our healthy balance sheet, and robust financial foundations, gave us the resilience to face into this incident and deal with it. The financial impact of the event is broadly as we set out in May and is reflected in our performance for the half as expected. M&S Group Adjusted Profit Before Tax was GBP 184 million, a decline of GBP 229 million from last year.

[Stuart Machin, CEO at Marks & Spencer]

This includes GBP 100 million of insurance claimed and received in the period. Free cash flow from operations was an outflow of GBP 193 million, but despite this, we closed in the period in a net funds position. I should also note that this is the first set of results where we have consolidated Ocado Retail into our numbers. This is just an accounting change as part of the original joint venture agreement, and it has no impact on our share of the business. Our strategy remains the same, and we continue to progress in our transformation, investing in future growth across store rotation, supply chain, and digital and technology. Today, our systems have been restored, and both our website and our stores have improved availability, and trading is recovering.

[Stuart Machin, CEO at Marks & Spencer]

Operational metrics are closer to normal in food and recovering across fashion, home and beauty, and progress is being made every day. Now let me turn to the businesses. In food, sales have been robust throughout, growing 7.8% on the year in value and 2.8% in volume. Food operating margin was 2% of sales, down from 5.1% last year. The decline in profit reflects an increase in waste as we manually pushed and allocated stock to our stores, resulting in a higher markdown, but this was the right thing to do in order to serve our customers. Systems in food have now been restored, waste metrics have reduced, and gross margins are closer to normal. Our top-line performance reflects a consistent program of new product launches, investment in Trusted Value, and a focus on protecting customer availability.

[Stuart Machin, CEO at Marks & Spencer]

We launched over 700 new products during the first six months, including our first-to-market Strawberry Sando, and we upgraded the quality of our Italian prepared meals, which drove a 35% uplift in sales, and that was part of our 1,000-quality upgrade program. Our investment in Trusted Value drove sales growth across Remarksable Value, Dropped and Locked, and Bigger Pack, Better Value ranges. Value perception has stepped up by 10 points over the last two and a half years, and that's the biggest increase of any grocery retailer. Our mission is to become a Shopping List retailer. We're seeing more customers choose us more often for their everyday shopping, with large baskets growing over 10% in the last 12 weeks. Our focus now is investing for the future, growing our store pipeline and building a modern supply chain, and we're making progress on this.

[Stuart Machin, CEO at Marks & Spencer]

In summary, across our food business, we are back on track. We believe there is so much potential to double the sales over the long term, which is why it's essential we get ahead of the curve and invest for the future. In fashion, home and beauty, sales were more challenged, down 16.4%. We had a particularly tough time where we had the dual challenge of no online sales for over six weeks, plus lower sales due to store availability issues. As a result, fashion, home and beauty operating margin was 2.7% of sales, down from 12% last year. This decline reflects lower sales and also higher stock management costs incurred in the period. With warehouse and replenishment systems now restored, availability is starting to improve and operations are recovering.

[Stuart Machin, CEO at Marks & Spencer]

Despite the disruption in trade, we have further improved our style credentials and retained our lead on quality and value, which helped us to recover our number one position in market value share. Both women's wear and men's wear have received a positive reaction to our autumn campaign, supported by strong marketing. We remain committed to offering customers First Price, Fight Price as part of our Trusted Value strategy, further investing in lingerie and kids' wear in this period. We’ve introduced new collaborations in home, like the Kelly Hoppen collaboration, and in beauty ranges like Estée Lauder. Under the leadership of John Lyttle, fashion, home, and beauty is increasing its focus on transforming the supply chain, accelerating online growth, and improving productivity, and we will bring this to life at our Capital Markets Day on the 11th of November.

[Stuart Machin, CEO at Marks & Spencer]

We believe there is a long-term opportunity to double sales online by modernizing how we buy, plan, and flow stock, while also increasing operational efficiency to improve profitability. Turning to international, reported sales declined 11.6% in the period, reflecting similar headwinds to the U.K. and disruption to franchise shipments. However, we saw an improvement in the second quarter. Importantly, we made progress resetting commercial terms with key franchise partners and expanded our marketplace presence with Amazon and Zalando across Europe. We also launched new partnerships, like our partnership in Australia with David Jones, and we've got more partnerships launching in the second half. Operating profit rose to £13 million from £11 million, with cost efficiencies and new wholesale businesses more than offsetting the sales decline.

[Stuart Machin, CEO at Marks & Spencer]

These first half developments give us more confidence than ever in our long-term ambition to build a global omnichannel brand with a focused capital light model. For the first time, Ocado Retail is fully consolidated into our reporting. During the period, Ocado Retail reported a small loss of £3 million. Sales for the 26 weeks to the end of September were strong, up 15%, driven by a growth in orders, increased frequency, and supported by a 20% uplift in M&S products on Ocado. Today, M&S accounts for over 30% of total Ocado sales and more than 50% participation in key fresh categories. CFC efficiency improved in the half. However, service delivery and fleet maintenance costs offset some of these gains, and that remains a focus.

[Stuart Machin, CEO at Marks & Spencer]

In summary, these are positive steps, and with improved CFC throughput and efficiency, we remain confident Ocado is on the path to profitability. Alison will now take you through the financials.

[Alison Dolan, CFO at Marks & Spencer]

Thank you, Stuart. Good morning, everyone. Let me start by taking you through the group headlines. Total group sales were GBP 8 billion, up over 20% on last year as a result of the consolidation of Ocado Retail. Excluding Ocado Retail, sales were GBP 6.5 billion, broadly level with last year. It is worth highlighting that the sales performances across the business units of food and fashion, home and beauty are very different to each other for the period, and I'll provide further detail on this later in the presentation. M&S Group Adjusted Profit Before Tax was 184.1 million, which includes the receipt of GBP 100 million of lost profit cyber insurance proceeds, which were claimed and received in the half. Adjusting items during the first half totaled 168 million, of which 102 million was incurred as a result of the cyber attack. Again, I'll provide further detail on this later.

[Alison Dolan, CFO at Marks & Spencer]

The resulting statutory profit before tax was £3.4 million. Free cash flow from operations for the period was an outflow of £193 million, again largely driven by the circumstances of the incident. Nonetheless, at the end of the period, we remained in a net funds position, excluding lease liabilities, supported by the strength of our cash balance. Including lease liabilities, our net debt increased to £2.5 billion as we incorporate Ocado Retail leases and other liabilities totaling £518 million onto the balance sheet for the first time. In May, we estimated that the cyber attack would have a trading impact on operating profit of around £300 million. The group profit bridge details the extent to which each area of the business has been impacted, and the total was broadly in line with what we expected at £324 million.

[Alison Dolan, CFO at Marks & Spencer]

127 million of that impact has been in food, about GBP 30 million more than our original expectation, which resulted from us having to replenish store stock manually without the systems we would normally use to manage waste and stock loss, and it did take us longer than we had expected to bring those systems back online and functioning normally. And about GBP 200 million of the impact has been in fashion, home and beauty, which was about what we had expected. The underlying drivers here were the website being offline for approximately six weeks, followed by a phased return over the summer. We also incurred significant stock flow disruption and stock management costs in both the first and second quarters, which impacted availability both in stores and online.

[Alison Dolan, CFO at Marks & Spencer]

Outside of the food and fashion, home and beauty business units, there was limited profit impact in international as cost reduction and wholesale agreements offset the impact on franchise shipments, and financial services saw some profit impact due to disruption to the travel money business. Collectively, the GBP 324 million reduction in trading profit has been partly offset by GBP 100 million of insurance proceeds, which have been recorded centrally and sit within underlying performance. Separate to the cyber attack, these financials reflect the first-time consolidation of Ocado Retail. For the 25 weeks to the end of September, Ocado Retail made a small operating loss of GBP 3 million. Net finance costs increased, again largely due to the consolidation of Ocado Retail and its incremental leases.

[Alison Dolan, CFO at Marks & Spencer]

In our new presentation, non-controlling interests are reported prior to M&S Group adjusted profit before tax, keeping the basis of disclosure of adjusted profit materially unchanged to reflect the fact that our economic interest of 50% of Ocado Retail remains unchanged. Adjusting items during the first half totaled 168 million, a significant increase on the £16 million reported last year. 102 million was incurred as a result of the cyber attack. £83 million of these costs relate to resource augmentation to replace remote outsourced technology teams whose access was disabled by the incident. The remaining charges primarily relate to third-party advisory costs. We anticipate final charges of approximately £30 million in the second half, as these resources have now largely been stood down.

[Alison Dolan, CFO at Marks & Spencer]

The remaining adjusting items in the period relate primarily to our strategic programs, including store rotation, the M&S Bank transformation, and the accounting effects of the consolidation of Ocado Retail. The cash outflow relating to adjusting items in the period was £39 million. We expect this to increase in the second half as the balance of cash costs is paid. Let's look at the results in more detail, starting with food, where sales grew by 7.8%. Sales growth in the first quarter benefited from Easter timing, and overall, top-line food sales were largely unaffected by the cyber attack. U.K. volumes grew by 2.8%, supported by growth in larger basket shopping missions as we continue to progress towards becoming a Shopping List retailer.

[Alison Dolan, CFO at Marks & Spencer]

The table here highlights how the impact of the incident was almost entirely at the gross margin level, which fell by 3.5% from increased markdown and higher waste and stock loss. Operating costs increased by 6.4%, obviously less than sales growth of 7.8%, resulting in positive operating cost leverage. Operating costs in the period were driven by increased retail costs, reflecting investment in colleague pay and increased national insurance, and by volume growth, which drove increased logistics costs, partly offset by structural cost savings in the period and lower incentive accruals, all resulting in an operating margin of 2%, down from 5.1% in the prior year. In Fashion, Home and Beauty, sales fell by 16.4%. Store sales fell by 3% and online sales by 43%. The drop in online sales reflects the pause in online orders between April and early June and a gradual recovery over the summer.

[Alison Dolan, CFO at Marks & Spencer]

The decline in store sales was caused by reduced availability of stock throughout the period as we restored our stock flow management systems. With these systems now restored, both our website and stores are improving availability week on week, and trading is recovering. Looking at both businesses individually, stores made an operating profit for the period of GBP 142 million, which was offset by an operating loss of GBP 96 million in the online business. Fashion, home and beauty gross margin decreased by 160 basis points, driven by increased stock management costs in the period, and operating costs declined 2.3% versus the prior year, compared with a sales decline of 16.4%, driving significant operating cost deleverage. This resulted in an adjusted operating margin of 2.7%, down from 12% last year.

[Alison Dolan, CFO at Marks & Spencer]

Operating costs in the period were driven by retail cost growth, reflecting investment in colleague pay and increased costs of national insurance, partially offset by structural cost savings initiatives. Logistics costs were lower than in the prior year, reflecting lower volumes and the exit of bulky furniture in the prior year, which more than offset the cost of a new temporary manual warehouse. Digital and technology costs were higher, which primarily reflects work on stock management systems, and as in the food business, there was a partial offset from lower central costs due to lower incentive accruals. Our structural cost program is a key part of our ambition to achieve operating margins of over 10% in fashion, home and beauty, and over 4% in food.

[Alison Dolan, CFO at Marks & Spencer]

Two and a half years into the program, over GBP 330 million of savings have been achieved, with GBP 34 million delivered in the first half across key areas such as retail, supply chain, and digital and technology. Today, we have announced a further increase to our target from over GBP 500 million to GBP 600 million by FY28, with more of a focus on cross-functional efficiencies, which are more complex to deliver, but where the value of individual initiatives is higher. Free cash flow from operations was an outflow of GBP 193 million in the half, which was GBP 214 million adverse to last year. The primary driver of the cash outflow was the incident, which resulted in a decline in operating profit, increased working capital outflow, and adjusting items in cash flow, partially offset by reduced taxation.

[Alison Dolan, CFO at Marks & Spencer]

The working capital outflow reflects a greater build-up of stock and slower stock flow due to more manual ordering and fulfillment, alongside timing delays in both payables and receivables, which we expect to partially unwind in the second half. The consolidation of Ocado Retail resulted in increased depreciation, offset by increased cash lease payments and working capital. Finally, contributions to the defined benefit pension fund recommenced in the period, and the reduction in cash capital expenditure despite increased investment in the period reflects a higher capital accruals balance at the half year. As a result, the group had closing net funds of GBP 176 million, excluding lease liabilities, including Ocado Retail leases and other liabilities. Overall, group net debt increased to GBP 2.5 billion from GBP 2.2 billion last year. We retained significant leverage headroom to our investment-grade credit rating metrics.

[Alison Dolan, CFO at Marks & Spencer]

To summarize the first half, the trading performance reflects the one-off impact of the cyber incident, which was broadly in line with what we were expecting, partly offset by the insurance proceeds received. Despite the incident and increased cost headwinds, we have increased our structural cost reduction target to 600 million from 500 million by FY28. Our cash outflow in the period reflects the profit impact of the cyber incident, but we anticipate timing effects within working capital will reverse in the second half. We continued to invest in our strategic priorities throughout the half in line with our stated capital allocation framework. We have a strong investment-grade balance sheet. We retain a net funds position pre-leases, and we will be paying an increased interim dividend in line with policy, all reflecting the strength of underlying cash generation and our financial position. I'll now hand you back to Stuart.

[Stuart Machin, CEO at Marks & Spencer]

I'll now share some thoughts on where we are with our transformation, which, despite the disruption, we remain laser-focused on delivering. We entered this financial year with strong trading momentum and a clear plan for disciplined investment. During the half, we've been investing in new stores, launching the long-term modernization of our food and fashion supply chains, and beginning to improve our technology infrastructure. In property, our goal is to grow to 420 food stores while creating a more focused, productive full-line store estate of around 180 stores as online grows towards 50% of fashion, home, and beauty. In food, momentum is building. During the half, we invested in a package of former Homebase sites with an average selling area of over 18,000 sq ft. We anticipate 14 new food store openings this financial year, and over 50 food stores are currently approved for opening in the future.

[Stuart Machin, CEO at Marks & Spencer]

For full-line stores, we have two new flagships that will open this financial year in Bristol and Bath, both prominent city center locations. A further 15 new full-line stores and four extensions are also approved to open in the medium term, while some legacy locations will close in the coming months. In supply chain, we're building a faster, leaner, more efficient network, one that's fit for future growth and focused on reducing complexity, increasing capacity, and structurally lowering our cost to serve. Next year, we'll open a new regional food distribution center in Bristol. This will allow more stores to be served by their nearest depot, cutting unnecessary costs and improving productivity. Today, around 100 stores are still not served locally, which is something we're now fixing.

[Stuart Machin, CEO at Marks & Spencer]

Longer term, our investment in the Daventry Food National Distribution Centre, bigger than the acquisition of Gist itself, will unlock capacity to support our growth ambitions while driving further cost efficiencies. In fashion, home and beauty, we're investing in automation at Castle Donington, enhancing boxed storage and hanging capacity to reduce split shipments, lower costs, and improve the customer experience. And finally, in digital and technology, our priority has been recovery, getting back online, reinstating click and collect, and flowing stock to stores in the normal way. This critical work, led by Sacha Berendji, is now in its advanced stages. While the recovery activity has delayed our plans to modernize and simplify technology, we're now increasing the pace of transformation in the coming year. For the remainder of this year, our focus is on ensuring operational resilience, cost control, and building new applications to support future growth.

[Stuart Machin, CEO at Marks & Spencer]

We're fast tracking the rollout of our new fashion, home, and beauty planning platform, and we're investing in key capabilities like personalization and loyalty, which does include the relaunch of Sparks. We remain clear there is much more to do. Change is a constant, and we remain resolute in our ambition to reshape M&S for continued growth, as well, of course, delivering the best Christmas ever for our customers. As we enter the second half, the consumer environment remains as uncertain as ever. As always, our priority is to offer the best product value, the best quality and innovation, and, of course, in fashion, the best style. We will continue to drive our transformation and to structurally reduce our costs to offset external headwinds. For context, during the first half alone, the increases to National Insurance contributions and packaging tax cost us an extra GBP 50 million.

[Stuart Machin, CEO at Marks & Spencer]

But there is much within our control, and the increase in our cost reduction ambition will help offset this. We are confident that we will be fully recovered and back on track by the end of this financial year. In the second half, we therefore anticipate profit at least in line with the prior year, as the residual effects of the incident continue to reduce in the coming months. Our plan to reshape M&S for sustainable long-term growth is unchanged. Our ambitions are undimmed, and our determination to knuckle down and deliver is stronger than ever. To date, we have delivered meaningful progress, but what's exciting is that there remains so much more to do, and it's all to play for.

Participants

Analysts

• Archie Norman, Chairman at Marks & Spencer
• Alison Dolan, CFO at Marks & Spencer
• Stuart Machin, CEO at Marks & Spencer