What Marks and Spencer Group (MKS) Said on Its H1 Earnings Call

Marks and Spencer Group LON: MKS reported half-year adjusted profit before tax of £403.2 million, more than double the £184.1 million reported a year earlier, as strong Food performance and a return to profitability at Ocado Retail helped offset pressure in the Fashion, Home & Beauty division.

Group sales rose 16.2% to £9.3 billion, while adjusted earnings per share increased more than 120% to 14.8p. The company generated £102.2 million of free cash flow from operations after £500 million of cash capital expenditure and ended the period with net funds, excluding lease liabilities, of £374.7 million.

Management said the comparison with the prior year benefited from recovery following a cyber incident that had caused waste and markdowns in Food and lower online sales and stock-management costs in Fashion, Home & Beauty. Chief Financial Officer Alison Dolan said that, adjusting for last year's insurance income, adjusted profit before tax in the comparable half was £413 million, slightly above the current period's result.

Food delivers sales, margin and market-share gains

Food sales increased 13.9% from the prior year, with like-for-like sales up 11.7%. Adjusted operating profit rose to £288.6 million and the operating margin reached 5.6%, ahead of the company's plan despite packaging taxes and investment in customer value.

Management said Food sales had grown 23% over two years, supported by 16% volume growth. The company has invested in product quality, lower prices and store expansion, launching more than 850 products during the half. It said it had gained 1.5 million new Food customers over the past two years as it sought a larger share of customers' main grocery shopping.

Dolan said Food's gross margin was slightly lower, primarily because of a £27 million Extended Producer Responsibility charge. However, the company said operating leverage, cost-reduction initiatives and volume gains supported a 0.5-percentage-point improvement in the operating margin compared with two years earlier.

M&S is continuing to invest in Food capacity. About two-thirds of planned full-year capital expenditure of roughly £750 million will go toward Food, including stores, supply-chain facilities and technology. The company said its new distribution sites at Avonmouth and Daventry are expected to provide more than 30% additional capacity at a lower cost per case. The £340 million Daventry national distribution center is intended to combine chilled and ambient operations and add automation.

Fashion, Home & Beauty remains below potential

Fashion, Home & Beauty sales rose 17.5% from last year, reflecting recovery from disruption, but were down 1.7% compared with two years earlier. Excluding the company's exit from furniture in 2025, sales were flat over the two-year period.

Adjusted operating profit was £150.5 million, with a 7.5% margin. Dolan said the margin was down 4.5 percentage points compared with two years earlier, as a modest sales decline exposed a cost base that has limited flexibility when revenue falls.

Management said the division gained market share in a market that declined 5.5%, but it was affected by continued availability issues following the cyber incident. Manual ordering lasted longer than expected, and the company said it did not always have the products customers wanted, particularly in womenswear. Hot weather also contributed to a promotional market and affected the balance between core and seasonal ranges.

Store sales in the division were down 5.2% over two years, while online sales, excluding furniture, increased more than 11%. Online represented 35% of Fashion, Home & Beauty sales, but management said the channel carries higher fulfillment costs and remains more expensive to serve than stores.

The company is rolling out a new planning platform, updating core systems and seeking to improve sourcing, stock flow and fulfillment. It cited the acquisition of Lichfield as a way to add automated online capacity and reduce split shipments, while a dedicated returns center in Sheffield is intended to lower the cost and time involved in processing returns.

International and Ocado Retail improve

International operating profit rose to £15.3 million, while sales increased 22% year over year, despite disruption related to conflict in the Middle East. The company cited growth in Fashion, Home & Beauty franchises, food wholesale and online marketplaces.

Ocado Retail returned to profitability, reporting adjusted operating profit of £25.6 million compared with a £3 million loss a year earlier. Comparable sales grew 16%, driven by new customer growth, improved retention and fulfillment-center efficiencies. M&S Food sales through Ocado rose 23% and represented 31% of the Ocado Retail basket.

Cost savings and outlook

Management said it has removed £450 million of costs over the past three and a half years and remains on track to reach £600 million in structural savings by fiscal 2028. It delivered £59 million of savings in the first half and expects more than £120 million for the full year.

The company also cited higher wage costs, employer National Insurance contributions, energy and other inflation pressures. Dolan said the cost base had absorbed a £135 million increase from National Living Wage and National Insurance changes over two years, alongside nearly £50 million in wider cost and energy inflation.

M&S increased its interim dividend by 16.7% and reported adjusted return on capital employed of 15.3%, up from 12.4% in September 2025.

For the full year, management expects Food margins to be ahead of fiscal 2025 levels and a progressive improvement in Fashion, Home & Beauty profitability. The company said group adjusted profit before tax is expected to be in line with current market expectations.

About Marks and Spencer Group (LON:MKS)

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.

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