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Picture: REUTERS/EDGAR SU
Picture: REUTERS/EDGAR SU

British retailer Marks & Spencer (M&S) will pull out of Russia altogether, and has joined rivals in warning about the outlook for 2022 amid a worsening cost-of-living crunch.

The 138-year-old clothing and food company ceased shipments to Russia in March and said on Wednesday it would get out of its franchise there, taking a charge of £31m.

M&S reported adjusted pretax profit of £522.9m in the year to April 2 — in line with analysts’ forecasts and up from just £41.6m in the pandemic-hit 2020/2021 year.

But for 2022/2023, M&S says it is starting from a lower profit base because it will not see a repeat of government business rates relief or a contribution from Russia and it is investing to boost capacity at its joint venture with Ocado Retail.

“The business is now much better positioned and had an encouraging start to the year. However, given the increasing cost pressures and consumer uncertainty, we do not currently expect to progress from this lower profit base in 2022-23,” it said.

Before the update, analysts were on average forecasting profit of £449.4m in 2022/2023, according to Refinitiv data.

In April, Tesco and Sainsbury’s both warned of lower profit this year.

Shares in M&S were up 0.2% on Wednesday morning.

British consumers, facing the biggest squeeze on disposable income since at least the 1950s, were hit in April by a double whammy of surging household energy costs and higher taxes.

Data published last week showed overall inflation hit a 40-year high of 9.0% and the Bank of England thinks it will climb above 10% later in 2022.

On Tuesday, the regulator warned that household energy bills could surge by another 40% in October, while market researcher Kantar said more than a fifth of households described themselves as struggling to make ends meet.

Analysts say M&S’s bias towards older, more affluent customers gives it some protection from the crisis, but they are still concerned it will feel the pinch, with its food business at risk of shoppers trading down to cheaper rivals.

M&S said it expects the effect of declining real incomes to sharpen in the second half and endure for at least the remainder of the financial year. It expects the rate of cost growth to subside by the third quarter.

M&S said trading in the first six weeks of the new financial year had been ahead of the matching periods in 2021/2022.

After presenting the results, Steve Rowe will step down as CEO after six years in the top job, ending a 39-year career at M&S. He will be succeeded by food boss and joint COO Stuart Machin. 

Reuters

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