Marks and Spencer Group plc

Hello everybody, it's Archie Norman here and welcome to the M&S 2024 results. You know, one of the things I've found over the years is that for some reason, whatever results we produce at M&S, people find them surprising. recent years surprising in a good way at least i would like to think so and our ambition is not to be boring i don't think we'll ever quite achieve that but it is to produce consistent growth in sales in market share in profit and shareholder returns and what you see in this set of results under a very strong leadership team is a good performance, which is the outcome of the management team doing what they said they would do in reshaping M&S. So I'm not going to say any more. I'm going to hand you over to Stuart, who's going to talk about the performance from a shop somewhere, as you would expect. And then Jeremy will go through the financial results, probably not from a shop. Stuart will sum up. And then there'll be lots of time for questions and discussion. Thank you.

Thank you, Archie. Well, good morning everyone from our store in Lakeside, Thurrock, one of our 104 bigger, better, fresher renewal stores. If you're watching on the 22nd of May, there is a conference call for analysts and investors at 9.30am when we will be available to answer your questions. There are three parts to today's presentation. First, an update from me on this year's performance highlights. Jeremy will then walk you through the financials in detail. And finally, I will share where we've made progress and where the opportunities remain in the year ahead and beyond. Then I will close with our outlook for the year. So it's been a good year of progress. Progress against our strategic priorities which we set out at our Capital Markets Day. Our strategy to reshape M&S has delivered growth in sales, market share, margins, return on capital and free cash flow. Profit before tax and adjusting items was $716.4 million, an increase of 58%. In food, sales increased 13%. This was driven by volume growth, which outperformed all of our grocery peers, attracting a record number of customers, including more family shoppers. Operating margin improved to 4.8% from 3.4%, supported by structural cost reduction in stores and benefits from the GIST acquisition completed last year. In clothing and home, sales increased 5.3% with full price market share up 80 basis points, driven by women's wear. Clothing and home is also attracting new customers, particularly online, which outperformed the market and grew faster than stores in the second half. Operating margin increased to 10.3% from 8.7%, supported by structural cost reduction in the logistics network and increased full price sales. Both businesses have now delivered 12 consecutive quarters of sales growth and this trading momentum gives us the confidence that the plan is working. Higher profits and disciplined investment choices are translating into increased return on capital employed. We've generated strong paybacks on store rotation, on store renewal and on the gist acquisition, all well ahead of our hurdle rates. As a result, we've increased free cash flow and strengthened the balance sheet. And we are in a positive net funds position. the financial health of M&S is the best it's been in decades. And this will enable us to step up investment this financial year whilst restoring a total dividend of three pence per share. So lots done, but we remain positively dissatisfied as there is so much more to do and so much opportunity ahead of us. And I will talk about this later in the presentation. I will now hand over to Jeremy to talk you through the financial detail.

Thanks, Stuart, and good morning. I'll start with the group headlines, which highlight another year of strong performance as we reshape M&S for growth. Group sales were £13.1 billion, up 9% on last year, with profit before tax and adjusting items of £716.4 million. I note that during the year, we chose to recognise £24 million of pension income in adjusting items, which had previously been reported within profit before tax. Prior year figures have been restated to reflect this change. Continued focus on strengthening the balance sheet delivered over £400 million of free cash flow from operations during the year, which has, in turn, reduced net debt. At the end of the year, we were debt free, excluding lease liabilities. I'll now take you through the results in more detail by business area. The food business generated double digit sales growth underpinned by strong innovation and broadening customer appeal. Volumes grew by 5% on the year as customer numbers, particularly those completing larger shops, increased. Food adjusted operating margin improved 1.4 percentage points, driven by an improvement in gross profit and operating cost efficiencies. Gross margin increased 0.7 percentage points as we continued investment in trusted value, funded by the Lowering Cost Programme. During the year, we benchmarked and re-tendered contracts and reduced promotional participation. Operating costs as a percentage of sales decreased 0.7 percentage points as sales growth of 13% exceeded cost growth of 9.9%. Store staffing costs decreased 0.3 percentage points with colleague pay increases partly offset by structural cost savings. Other store costs were level as sales leverage was offset by energy inflation headwinds. Distribution and warehousing costs decreased 0.2 percentage points with the effects of inflation and volume growth offset by benefits from the acquisition of GIST. Central costs decreased 0.2 percentage points as sales leverage was partly offset by technology investments and colleague costs. In clothing and home, sales grew by over 5% as we bought deeper into key lines, reduced promotions and improved stock flow whilst improving product design and customer appeal. Sales mixed by channel moved in the year with stronger online growth in the second half and with active customers, frequency, number of transactions and average basket value all growing year on year. Clothing and home adjusted operating margin improved by 1.6 percentage points with gross margin up 1.5 percentage points as buying headwinds, including currency, were more than offset by the annualization of pricing action and increased full price sales. Operating costs as a percentage of sales decreased 0.1 percentage points as cost growth of 5.1% was marginally lower than the 5.3% growth in sales. Store staffing costs increased 0.3 percentage points driven by investment in service and colleague pay increases, partly offset by structural cost savings. Other store costs decreased 0.7 percentage points with structural cost reductions and one-off savings more than offsetting inflationary headwinds. Distribution and warehousing costs decreased 0.5 percentage points as the effects of inflation were offset by structural cost savings and deficiencies. And central costs increased 0.8 percentage points, driven by an increase in technology investment and higher colleague costs. Moving now to international. International sales, excluding Republic of Ireland, declined by 1%. As a result of the weaker sales and action taken to reduce stock levels in India, operating profits declined to £47.7 million, down 30% versus last year. Republic of Ireland performance improved in the year, with sales growing 2%. Supply chain efficiencies helped drive an improved operating profit performance to £27.9 million, up 65% versus last year. I note that from 2024-25, the results of the Republic of Ireland will be reported as part of a new UK and ROI segment within both food and clothing and home. As set out at the Capital Markets Day in October 2022, our objective was to permanently remove £400 million of costs by 2027-28. One year into the programme, £180 million of costs have been removed, predominantly in retail and logistics. Given this momentum and continued inflationary cost pressures, we have increased our savings objective from £400 million to £500 million by 2027-28. The group profit bridge shows the year-on-year profit before tax movement, driven by food and clothing and home, partly offset by international. While sales growth accelerated in Ocado, driven by increased choice of M&S products, profitability remains well below our original expectations. Our loss in the year was £67 million, of which £37.2 million was taken in adjusted profit before tax and the balance in adjusting items. The contribution from M&S Bank was largely driven by a provision release following the exit of M&S Energy in 2023. A decrease in net debt reduced interest costs in the year. And adjusting items include the Store Estate Programme, M&S's share of costs relating to the ceasing of operations at Ocado Retail's Hatfield CFC, and the release of the Ocado Contingent Consideration, as announced at the half year. Overall, the group generated £414 million of free cash flow from operations in the year, a year-on-year improvement of £243 million. This was driven by higher operating profit across food and clothing and home, working capital inflows and reduced interest expense. Cash inflow from working capital was driven by a higher year-end payables balance, mainly due to the timing of Easter. Net capital expenditure increased with the focus on investment in the Group's strategic areas of store rotation, supply chain and data, digital and technology, which I'll talk about further in a moment. Ocado Retail drew down an additional £30 million on its shareholder loan facility in the year, and increased taxation was principally due to the increased profit in the year. The change in net debt was predominantly driven by free cash flow from operations and a decrease in lease debt. As I mentioned in my introduction, at the year end, we were debt-free excluding lease liabilities, a reduction of over £1.4 billion over the last four years. At the Capital Markets Day in November 2023, we set out our minimum hurdle rates on capital investments. To date, all areas of investment across new stores, store renewals and M&A are performing ahead of expectations. And as a result of profit growth and return on our investments, Rokey has improved to over 14%. As a result, we are increasing our capital envelope to £500 million net of disposals, with approximately £300 million ring-fenced for store investment. And so to summarise, during the year there has been sustained trading momentum driven through growth of new customers, strong like-for-like sales and store rotation returns. The structural cost programme exceeded its objective of £150 million savings in year one and therefore we have chosen to increase the overall programme objective from £400 million to £500 million by 2027-2028 to further fund value and quality improvements and offset cost inflation. We remain committed to our focus in delivering sustainable and consistent free cash flow to deliver balance sheet capacity, fund investment in the reshaping M&S strategy, as well as to pay a nominal dividend. Taking all of this into account, we expect to make further progress this financial year, which Stuart will talk about later in more detail. I'll now hand you back over to Stuart.

thank you jeremy ms food is gaining new customers and broadening its appeal value market share increased 15 basis points and volume share 20 basis points we generated record customer numbers with growth across all customer demographics led by families This growth is a result of the long-term changes we've been making in our food business. Investing in everyday value with promotions now halved from what they were just a few years ago. Upgrading and innovating a third of our range. Investing in our new food renewal format, bigger, better, fresher style food stores. increasing share of everyday products and larger baskets. Let me give you a few highlights from last year. Our Remarksable value range had sales growth of 34%. We dropped and locked a further 90 products, building trust in M&S value in a very highly promotional market. 1,300 lines were new with a focus on basket building products, biscuits, hot beverages for example, and we developed new ranges like high protein and gut health. This year we've planned further value and quality investment. This includes the recent cook menu dining, the perfect solution for mid-week meals. And we will continue to put exceptional quality food products at the heart of everything we do. Food store rotation and our renewal program is on track with larger new store openings providing us with future growth opportunities. Last year, we opened 14 new locations and eight food renewal stores, all with very strong paybacks. In the year ahead, we have nine new locations and around 25 new store food renewals. The food supply chain programme is critical as this underpins the future growth and margin potential. This includes longer-term supply commitments, joint business plans with our partners, the GIST acquisition, which has delivered almost 70 million of savings this year and will see us take a new step in building new DC capacity as part of our longer-term investment plan, completing the rollout of a new forecast and ordering system, which will help improve availability and reduce our waste. And finally, a new store operations program that we call the One Best Way. This helps us deliver better customer availability, better service in our food stores and helps improve productivity. So in summary, In our food business, we're on track and we've made good progress. But now we need to get ahead of the growth curve to continue to maximise the opportunity and to continue the momentum. The improved performance of clothing and home has been driven by better, more stylish products, underpinned by the adoption of a new trading model. Although there's much progress, there's also so much more opportunity. Changes to date have been built around reducing range complexity with fewer skews, buying bolder and deeper, shifting to trusted value with full price sales mix increasing from 63% to now 81% of sales, improving stock flow with historically low levels of cover. Let me just take you through some of the highlights of last year. It was a robust performance in core product categories such as denim, knitwear, lingerie, as well as men's autograph and the holiday shop. As a result, market share increased 40 basis points with style perceptions continuing to improve and our lead on quality and value perception was extended. As I said, there are opportunities. This includes core home, following our decision to exit our bulky two-person furniture business so we can increase our focus on product areas such as bedding, bath and kitchen. also capturing all the opportunities outlined at our Capital Markets Day last year, like women's occasionwear, men's outerwear and kids' daywear. Store performance was robust, sales were up 4% and store rotation generated strong returns. These stores are attracting new customers with relocations delivering 50% sales growth despite trading from similar space in the older stores. Payback in these stores around two years. We are planning for up to four new four-line stores this year and implementing a refreshed clothing and home renewal format. The opportunity still remains to find new sites and accelerate our store rotation and renewal program. Clothing and home online sales increased 7.8%. Performance accelerated in the second half as we implemented more effective marketing, particularly in women's wear. Structural cost reduction in logistics and improved delivery service helped drive and deliver a higher operating margin of 8.2% compared to 5% last year. Our focus in the year ahead has to be online and the online and the app experience. This will include some systems changes to support the partner brands strategy. Underpinning all of this is the work we also need to do on our end-to-end supply chain. in sourcing consolidated denim, knitwear, and lingerie across fewer suppliers and mills. Across UK logistics, investing in capacity and automation to drive growth planned for this year. And investment in the new planning platform, which starts this year, which will provide end-to-end visibility of stock facing into some of the availability challenges we have today. So in summary, across our clothing and home and beauty business, lots has been done but there's so much opportunity ahead. International had a disappointing year. Sales were down in the second half. We had lower profits as we needed to take action on high level stock inventory, particularly in India. Our objective remains the same. driving international growth by leveraging the UK business and the M&S brand through capital light franchise partnerships. We see substantial opportunities to create a truly global M&S and we expect to update you on our plans at our Capital Markets Day this autumn. Results for Ocado Retail are reported by Ocado Group and therefore are not consolidated in these results. But I wanted to give you a brief update. Ocado is in the early stages of driving sales growth, which improved during the year driven by increased choice of M&S products and overall better value for money. There are now 4,800 M&S food products listed on Ocado, which is 20% up on last year. And although availability of M&S products has improved, there is so much more to do. Ocado's price inflation was less than the market, driven by improved value for money, especially on M&S products, but also with the big price drop campaign. In fact, sales of M&S grew 15% in quarter four, which was ahead of Ocado retail sales and represented 30% of the basket. While the sales improvement is encouraging, profitability remains below original expectations. There is a lot of scope to improve Ocado's delivery service and customer online experience. The new Luton CFC delivered a rapid ramp up in operations as the business transferred from Hatfield. although capacity fees for Hatfield are continuing and we do not expect Ocado Retail to reap the full financial benefit of transferring to the new site. Ocado Retail still operates on legacy technology for its website, delivery and supply chain. Over the next 18 months, it will be migrating to Ocado's new technology, the Ocado Smart Platform, a solution which will offer customers increased convenience and greater personalization. I will close with outlook for the current financial year and my thoughts on the challenges and the opportunities as we look forward. In terms of outlook this year, our focus will remain on growing volume and market share across both of our businesses. delivering the M&S magic to our customers through exceptional quality products, value, service and the M&S innovation. There will be some headwinds. Our cost inflation remains elevated and we are planning for structural cost reductions and other efficiencies to offset this. But given our increased confidence and our track record over the last two years in delivering growth, we are planning to make further progress in performance this year and beyond. More broadly, in terms of strategic delivery, as you can see, lots has been achieved. We've had a good year and I would like to take this opportunity to thank all of our colleagues for their hard work and their contribution and also to all of our customers who have shopped with M&S this year. Expectations don't stand still and we as a team are always aiming higher. The job requires the continuation of the soft wiring cultural change. meaning as colleagues we are all sleeves rolled up, where M&S comes first, a culture where we're closer to customers and closer to colleagues. And the hardwiring sustainable change is just as important, in particular where progress has been slow. Building our data and digital technology infrastructure, improving our loyalty program, and moving to a more personalized customer experience. And of course, resetting and reprioritizing our plans in our international business. We have a clear vision for the future, a strong team in place, and there is so much opportunity ahead of us. I think we are at the beginnings of a new M&S.

Morning, everybody.

It's Archie here. I'm here with Stuart, Jeremy, Fraser and the gang. It's a pretty miserable day out there, but I can assure you it's not miserable. It's M&S. As the results get longer, my remarks get shorter, but don't worry. Stuart has got a few words to say.

Shall I kick off? Well, good morning, everyone. Thank you for joining us. Just before we open up for questions, I thought I'd touch on the results we've published this morning and touch on our transformation. Firstly, the plan we set out two years ago to reshape M&S for Growth is starting to pay off. And as I said many times, we consider ourselves a growth business. Our vision is to be the most trusted retailer with quality products at the heart of everything we do. We're obsessed with product. We share a passion for food and clothing at home and put in the very best product, quality and value in front of our customers. During the last year, we served almost 1 million more customers than before. Over 32 million people shopped with M&S, which is over 60% of the adult population. And as I said, more customers than ever before shopped with us. So it's been a year of good progress. Our strategy has delivered growth in sales, market share, margins, return on capital, and free cash flow, with profit before tax and adjusting items of 716.4 million, an increase of 58%. So lots has been done, but you wouldn't be surprised when I say we always remain positively dissatisfied But that's because there is so much more to do and so much opportunity ahead of us. And one of our new behaviors in M&S is always aiming higher. In food, our sales increased 13% with market share up 15 basis points and volume market share up 20 basis points. Performance was driven by volume growth, which outperformed all of our grocery peers. We attracted more family shoppers. Operating margin improved 4.8%, which of course is ahead of our 4% target, supported by structural cost reduction in stores and benefits from the GIST acquisition completed last year. So in food, I would say we are on track, but now we need to get ahead of the growth curve and continue the momentum. In clothing and home, sales increased 5.3%, total market share up 40 basis points, and full price market share up 80 basis points, driven by women's wear. Clothing and home is attracting new customers, particularly online, which outperformed the market and grew faster than stores in the second half. Operating margin increased to 10.3%, more or less on target of our 10%, which we outlined at the Capital Markets Day, supported by structural cost reduction in the logistics network and an increase in full price sales. So my summary for clothing and home is we're on track, we've made good progress, but there remains a significant opportunity across this part of the business in future years. Just touching on two of our strategic priorities, store rotation, we opened six four-line stores and eight standalone food stores we're starting to create a very different shopping experience. These stores are performing ahead of plan, growing in their first, second, and third years, and we have strong paybacks and above our hurdle rates. Our second key strategy is, of course, supply chain. In food, the GIST supply chain integration has gone very well. During the year, we had 70 million of GIST savings delivered, meaning the payback is ahead of plan. And in clothing home supply chain, we focused on our ranges, consolidation of our factories and sourcing partners. So across both of our businesses, we're on track, but so much more to do in modernizing our supply chain and automating our networks. There are some parts of our business that are a bit more challenging, international progression has been slower than we would have liked and not as fast as the UK so that is a focus over the coming year and years ahead and in data and digital technology we know progress has been slow and we're playing catch-up and of course as you know Ocado is not consolidated in these numbers but encouraging these sales are growing in particular M&S sales on Ocado We're behind expectations on profitability, but there's an opportunity, and I still believe strongly, that M&S Food can do very well online. In fact, recently, we've been 30% of the Ocado basket. Despite these challenges, high profits and disciplined investment choices are translated into increased return on capital employed. As a result, we've increased free cash flow, strengthened the balance sheet, and we are in positive net funds position. The financial health of the business is the best it's been in decades, and this will enable us to step up investment in growth strategies this financial year, whilst also restoring a final dividend of three pence per share. Just on outlook for this year, our focus remains on growing volume, and market share by delivering what I call the M&S magic to our customers. Great exceptional quality, great service, great value, and of course, innovation that's part of our DNA. That said, we know we have some headwinds. Cost inflation remains elevated. We're planning for structural cost reductions and other efficiencies to offset these costs. But given our increased confidence, Our track record over the last two years in delivering growth, we're planning to make further progress in this year and, of course, beyond. We have a clear vision for the future, a plan in place, and we all believe the opportunities are ahead of us. With our current trading momentum, this gives us some wind in our sails, and I think we're at the beginning of a new M&S. I will now hand over my due questions.

Okay. Thanks, Stuart. That's great. And now I'm looking on the screen for Clive Black, but perhaps he's stuck on a train somewhere because I can't see him. Anyway, let's take some questions. Could you ask one question at a time? Because we can only cope with one. Oh, there's Clive. And we can only cope with one, and then you can have a follow-up to see how it goes. So let's start with Isabel de Brava from Morgan Stanley. Isabel, do you want to chip in?

Hello, good morning. My first question is on availability in clothing and home. I was wondering if you could give us a sense of where your availability metrics sit at the moment and how much further room there is to improve on this so that we can understand how much more of a tailwind there is for market share once you improve availability further while maintaining the full price sales discipline, of course.

It's a good question, Isabel. Thank you for that. I can only wonder if you've been shopping in our stores and not found something that you wanted, but let me know. Availability was up in clothing and home overall, But I should tell you that in some of our ranges, we have struggled, in particular on smaller sizes. And that's really because it's not really the Red Sea. People have been asking me. The Red Sea has had minimal impact, and we've managed around that. But we have outperformed on a lot of our small sizes, not just in women's wear, but also men's wear. I was going through the buy just a couple of months ago, and when we talk about smaller sizing, normally that ratio is about 20% of sales. That is actually growing to be more like 30% to 35% of sales. So the action, we're buying deeper. especially as our product is getting more stylish, more fashionable, and then more we're backing the volumes of those smaller sizes in particular. So it has been an improvement year on year, believe it or not, but we have been settling out of smaller sizing. I don't know if that answers your question, but that's one particular thing we're focused on.

Isabel? Yes.

I had a follow-up question just on the growth margin. So it did improve very strongly across both businesses. Can you help us understand how much of that was the cyclical headwind from last year getting lapped and essentially mean reversion and how much of it was structural improvement?

Yes. Shall I give Jeremy first? Yeah, thanks. Hi, Isabel.

So it's a slightly different story in the different businesses. In clothing and home, Part of it was down to FX. Part of it was down to price increases actually from the previous year, just wrapping round. But a big chunk of it was in the focus, as Stuart's already mentioned, on focusing on full price, taking away the promotion element and getting full price stock into tail, which was at 81% last year. So it's around that discipline. Within food, Really, it was in the cost-out program. The guys have been working very hard on working on cost-outs in the business, working on waste. big investments in value and quality, and then partly around the leverage actually from the volume growth. So slightly different mechanic in the two businesses. I think heading into this year, I think, you know, for the moment, I think we'd be expecting both of those gross margins to be flowing through at the rate that we were delivering in 23, 24.

I think just to add as well, the benefit in clothing was full price sales. So 80% of our sales were full price. And definitely the plan Richard and I and the team share is less sale and less product into sale. And we're working hard on that. So that's one other thing. And logistics costs in both businesses added some benefit to margin as well. So I think we're in pretty good shape. We see that sort of playing out in the same way this year. Good.

Thanks, Isabel. Right, well, Clive's now appeared on our screen. So, Clive, give us a bit of boom-boom.

Well, congratulations to start off with, and I have to say it's very nice in Liverpool today, so good news all round. Could I just ask Stuart, where do you see the key opportunities for M&S here? And then just associated with that, you and Archie, What about the priorities from a capital allocation perspective? It's one question with two parts for me.

Well, I think it's the same sort of question and answer, Clive, but good morning and good to hear from you. I mean, the opportunities, if you just stand back and look at both businesses, the first is our store estate. We are targeting, as you know, 180 four-line stores through that food rotation strategy, 420 food stores. And if you think about today, we only have 104, I think it is, renewal stores, all performing well, all strong paybacks. And even at the end of this year, only 26% of our store estates will be renewed. So I stand back and think, can you imagine... when we get to that future, all stores in the right place, a better shopping experience, double digit growth year after year, good two to three year paybacks. That is a big growth opportunity in food, but also clothing and home. And that is where we're going to put our capital. That's point one. Point two, of course, is supply chain. Supply chain, we've made some headways, especially around efficiencies. but actually we need to now invest in our supply chain. We think about food, our acquisition of GIST will go down in history as one of the best acquisitions we've ever made. We've already had benefits of 70 million in the food number, but actually the hard work really now does start in rationalizing our networks, automating our food networks, and preparing for future growth, volume growth in food. Our FO&A program is halfway through. Alex and the team are doing a very good job of this. It's been well run, well managed by September, I think, where we'll be completing that forecast, ordering and allocation rollout. Normally in a business, that's the only thing you would do in five years. To us, it's just one of many things. But when that finishes, you can start seeing how the benefits will start playing out and the efficiencies. And in clothing and home, again, there's some really good work in Richard's area around logistics efficiencies, automation, consolidation of some sites. But we have got a big job to do around central merchandise planning. We've only just started that. It's a five-year program. And the other thing we're now thinking about, Donington being one example, we're actually looking at the growth in five years and 10 years and saying, what is the next step for Donald? That means point two in our priorities for growth is also where we are going to apply our capital. And the final one is on data, digital technology. We did release more spend in the second half. I reckon when I talk to colleagues and people outside of M&S, Everyone seems to have challenges around DE and IT. But for us, we've got a big job to do in our technical infrastructure that's kicking off with SAP now. We're working through that program for the next two years. We want a better data and digital experience. We want to use the data better to drive more personalization, especially to drive our online performance in clothing and home. And on digital, we've done a lot on our website and our app, but actually there's much more to do when it comes to a more digital experience in store and online. And that is also where we will be investing our capital and our resources.

And Stuart, just by way of, sorry, Stuart, just by way of comeback, I mean, you've done an incredible job of setting margin targets um last year that in food you've beaten and in clothing you've beaten that is the four and ten percent would it be correct to say that you're more likely to reinvest um future gain on that front as opposed to uh rebase your margin targets higher or are you happy for margin targets to be rebased higher

No, you were right in your first comment, which is we laid out the capital markets day, the 4 and the 10, and we did that quite scientifically. I did add after six months greater than, but that can mean 4.1 or 4.8. We need to constantly reinvest, reinvest in value. And also just make sure we're reinvesting in quality as well. And we will do that. And that's why this year it's very, very low inflation in food. I was just reflecting back with Jeremy the other evening when we started to invest in value, you know, four years ago, three years ago, it always pays off in the following year. And last year's investment value in food of 60 million has already started to pay off as we think about this year. The same in clothing. Our clothing prices are relatively flat. Our back to school launch this year will be flat again for the fourth year in a row. So we will constantly invest in products, in quality and value for customers and drive volume.

That's really clear. It's very encouraging. And Jeremy reminded me last night, the last time you had such a strong balance sheet was 1997, which is the year Darren and I started covering Marks & Spencers. So gone full circle. Well done.

You're a young man, Clive. Some of us were around a lot before that. Thank you, Clive. Good questions. And shall we go to Sridhar Mahankali from UBS?

Hi. Good morning. Can you hear me? Yes. Hello.

Very good. Thank you. Actually, can I just pick up on... Actually, I'm sorry. I was just going to pick up on Clive's point, actually, on food margins specifically. You're talking about greater than 4%. Clearly, I'm sure what you did say could be 4.1 or 4.8. But at the same time, I think you're clearly sounding very optimistic about gist optimization further to come potentially some big improvements in cost to serve if you could just square those two ie are we looking at consistently kind of mid force or higher than that in food aided by your just cost to serve improvement opportunity or do you see a bigger opportunity to reinvest and we shouldn't be thinking mid-force and things like that, more like just ahead of all. That's really the main question for me. But if I'm allowed just one other, which is if you could just talk through.

Thank you. Yes, yes, yes. I mean, just a point of clarification on GIST is the it's a 10-year program upgrading the network.

Yeah.

So obviously the capital implications of that too, it would probably add a lot of the short-term benefits from integration, but you're good.

Well, I'll kick off and Jeremy can chip in as well. I think the first thing is I don't want us to get too obsessed with margin rate. Every time my team talk about a percent, I draw them to the cash straight away. So whether it's 4, 4.1, 4.5, we know to have a good healthy food business, we want to generate a rate of over 4%, greater than 4%. If you look at the bridge of last year, and you go to the base of 2022-23 at 3.4, obviously we had gross margin benefit, some good efficiencies in store colleagues and resources with better productivity, and then distribution supply chain added another 0.2 to that operating margin and other central costs, which took us to 4.8. What I really want us to focus on is, as Archie said, when it comes to supply chain, there's so much opportunity for investment as well as opportunity to take costs down. The supply chain is one, of course, as Archie said, a 10-year program. So I think that GIST margin, which supported it by about 80 basis points, That should continue, but we need to now invest in the network. So I wouldn't say that's the easy part done, because actually Alex and the team have worked very hard on that integration. But it's the first step of a long journey of restructuring our supply chain. I mean, what I should say is we have a very strict capital envelope. Jeremy and I have increased it this year. But we've increased it because we know we have those big strategies, which I referred to in my answer to Clive, for investment. And investing in those three things on stores, supply chain, D&D technology will give us good returns in the future.

Yeah, I'll just give an FD for space as well. We are focused on the percentage, but really it's the cash margin that's the most important. And I think the percentage is, is the output. And you've got to be very careful in food and clothing and retailing. You don't let the margin drift too far and become uncompetitive. And I think a really strong part of last year's delivery was the fact that our price inflation was below the market. We were driving volume. We were getting leverage from that volume growth. And it's really about the volume growth, the focus, with the margin just being something we keep an eye on as an output rather than being an ambition in its own right.

Thank you. Do you want to come back?

Really, just one point to follow up on. I think clothing at home, anything you could help us in terms of puts and takes for the year ahead in terms of gross margin, quite a lot going on, FX, freight, pricing. Pricing, I think you've already talked about being relatively flat, so any help there is great. Thank you.

Yeah, I've listed at least five things in clothing at home. It's fairly complicated. FX, I think we think we'll be slightly better. Sourcing and buying in costs should be slightly better with the way commodities are going. Pricing, we think will be largely flat. We will be investing, again, you'll see that in the margin bridge from last year, we'll be investing in things like the supply chain improvements. We are looking to turn from negative volumes to positive volumes from last year into this year to drive the overall margin for our own leverage. But then we have got this large investment in colleague pay that we're making in the year, which we're looking to offset with structural costs. So there's lots of puts and takes. When you take them all into account, and some of them are quite big, actually both at a gross margin level and a net operating margin level as we stand here today at the start of the year, we expect all those to pretty much net out today. And it's really about the volume growth that will drive the progress and performance in the year.

I think the thing just to touch on that's encouraging for clothing that Richard and I and the team are excited about for the future is we've got growth in all our categories. And I think really our clothing transformation has only just started in the last 18 months. But if you look at last year, women's wear growth, men's wear growth, kids wear, beauty, etc. And there's so much more to go for. Whether it's online, we're still aiming for 50% participation. We've only got a couple of renewal stores in clothing. The ones we've done have seen very strong uplifts. Our perception in style, value and quality has all gone up in the last 12 months significantly. We're still growing share. We've outperformed the market on share. We continue to do so even in the recent weeks. And we are attracting a broader customer base. And when I talked about those customer numbers, I mean, lingerie stands out. We have a very high share in lingerie. We've had big growth in customers in lingerie, our most trusted category. So I think the work we're doing around the offer, the edited ranges, the style, the quality, and maintaining that price and that value is going to put us in good stead for the future.

Okay, thanks, Stuart. We've got quite a few questions outstanding, and we're not getting through them. We'll take that paper. Let's try and crack on. Warwick O'Kine said BNP.

Yeah, morning, everyone. Thanks. Two questions, actually. The first is about the speed of change in food. I think you're planning to open nine full line food stores in the year ahead, which I think leaves about 85 in the following three years to hit your target. So if that math is correct, are you on track? And perhaps how many of those future openings could come from existing estates of full line stores?

You're testing me now because I'm trying to work it out, and I did get it wrong on the last call. But we, as you know, we have 104 renewal stores, and Jeremy, correct me on any of this if I'm wrong. We are opening nine new food stores, four four-line stores, which of course then include Food and Clothing Home, and we're doing 25 renewals. Now, that may go up slightly or depends, but we're going to be quite agile with that capital allocation. But we have a plan for 25 that's in the pipeline now. So at the end of this year, that will give us 26 percent of the estate, which will be renewed. And therefore, there's still quite a way to go, because, as you know, We're aiming for 180 four-line stores. At the moment, I think it's 225. I'm looking because I can't remember. Thank you. 225. So we're looking for about 180 bigger, better four-line stores and 420 food stores. There is one slight confession. We have to get quicker at finding new space. That is really important. We are playing catch-up of 20 years of not having the right property plan in place and not getting ahead of trying to find the right space. So we've been playing catch up over the last few years and we're still playing catch up. So we're constantly looking for the right space, especially for our food stores as well. I mean, just to play it back, our four line stores at the moment, we're having two year paybacks in food, two and a half to three year paybacks. So I think that's a good opportunity, and those stores are, of course, bigger. We used to open, if we go back five years, the average store was about 4,500 to 5,000 square feet. Our average now is 13,000 square feet.

Ulrich, we're probably, I'm not probably that specific on numbers, but we are looking for new sites, and we're probably finding it harder curiously in this environment, even though not a lot of other people. There are not many retailers out there looking for sites like we are. But at the moment, I wouldn't say we're struggling. We've got a decent pipeline, so it's not the one we'd be ideally looking for. Do you want to come back, Warwick?

Yeah, thank you very much for that. I just wanted to ask about international. You've said clearly there's a lot more work to be done, but at the same time you've got ambitions to become a global brand. I suppose just interested in how you think you've become a global brand from where you are today.

Look, it's a good question. I think the thing to touch on is You know, the international business has been a bit slow this year. Sales are slightly down and we are behind where we want to be. What struck me in the last 12 months is we have got very strong franchise partners. This isn't going to be an area where we are going to put our shareholder money into. This is about investing capital light. and working with franchise partners who actually are very ambitious for M&S. Our brand definitely resonates in the countries, and we operate in 35 countries, and our brand resonates. And I think the thing we probably got slightly confused about in the last couple of years is the difference between global and international. I'm very clear that actually we have a brand that can extend globally. International is slightly different. When you go to international markets and you start creating ranges to tailor to the international market, our position is very clear. Capital Light work with our brilliant partners, whether that's in India, whether it's in Asia, et cetera. And therefore, whether it's stores or online, we want to leverage the M&S brand and take that globally. We've got new leadership in place. I'm hoping that we will be in a really good position at the Capital Markets Day to give a good update on international.

Great. Thanks, Stuart.

Okay. Thanks, Warwick. Okay, we'll go to Richard Chamberlain and then James Anstead, and he's backing on. Richard.

Yes, thanks, Archie. Morning, everybody. I've got a question on marketing costs, please, particularly for clothing and home. I'm not sure you can give any numbers on this, but I just wonder what's happening to marketing expenditures and how the marketing strategy is sort of evolving for M&S now we're in the new financial year. Thanks.

Richard, thank you. I never thought I'd get a marketing question on this call. There you go. You've surprised me. I mean, I think our marketing costs were relatively flat year on year. I think what we have got, and some people may disagree around this table because I'm glaring at the chairman, but I am very supportive of our recent marketing campaign. We've been more digital. We've integrated our marketing because it's not just about TV anymore. It's more through social and how we're communicating to customers in a different way. And our marketing, I think, has been, when I look at the stats, way more effective than prior years. Our food marketing has always been pretty strong. I always say we've thrown a lot at the wall to see what sticks, but we've really now doubled down and concentrated on our food, our magic, the lengths we go to, our quality, our farming, et cetera. And I think the work the food team are doing is really strong. In fact, this year, we've also got another Cooking with the Stars. And that's not just about a TV show. That translates through social and into stores and into better promotion of our products. And in clothing and home, the recent campaign showing our more stylish clothing has definitely resonated. In fact, when we were looking at the products to put on those adverts, I'm reminded of the Palazzo Jean, for example. We thought, well, 15,000, that might be enough. It went on the TV and we sold out in 24 hours. So I think our marketing is more effective. It should be trade driving. It shouldn't just be about brand. It should be driving trade, communicating with customers. And I think how we're integrating it through social channels has been much stronger in the last 12 months.

OK. Thank you, Stuart. I certainly agree with that. And I wouldn't be allowed to say anything if I didn't. So Richard, anything else?

Yeah, thanks, Archie. Just one more, if that's okay. On the digital side, I just wondered if there's some scope to sort of improve the service options kind of consistency in terms of, you know, delivery promise, click and collect times. Is that going to be a focus for the year ahead?

Yes. I think we've got, if you look at our benchmark online and through Click and Collect, there are many things we do better. You know, failure rates, I like to make it more about positive for the negative, but our failure rates are a lot less than some of our competition. But our proposition needs to be improved. As you know, at the moment, we have 63% Click and Collect. We're spending more time this year, hopefully, looking at how we're going to make the experience online and on the app better. We're doing a lot of work around how we can improve our style guides online, which I'm very passionate about, but also how that translates in stores as well. But there is one thing, our standard delivery is actually not the best proposition in our market. So I would like us to see us move from the two to four day to the next day. Now, I can't guarantee when that will happen, but that is definitely a target that Richard and I share, and Rachel, when she joins, running our data and digital, will be helping us with. So it's top of mind.

Very good.

Thank you, Richard. We need to keep moving on, so let's make it rapid fire. James Anstead from Barclays.

Morning. I've got two very quick questions. Firstly, I know you haven't given any updated current trading numbers in your statement, which is fine. It's only seven weeks and the weather patterns are mixed and you had the coronation holiday last year, etc. But as you try and look through all those things, are you seeing any changes at all in underlying behaviour since the start of the new financial year?

Well, I'll kick off first. Jeremy can add. You've answered it all, James. You know, April was, we called it soggy. I really, every time my team talks about weather, I glare and say we can't talk about weather, but we always do. But you're right. April was a bit wet. Last year, we had obviously the coronation and Easter last year. Take that to one side. If you look at the latest Cantab, we're outperforming the market in food and in clothing. And therefore, I think we're in pretty good shape. I would like us to get ahead of the momentum. The food team have got a big job to still continue to improve availability for customers. Weekends, late nights. I was in a store recently doing the video, interestingly, for the results. It was Lakeside Thurrock. And since we relocated that store, we've had significant growth. But the growth on the weekend is 70%. And we can't keep up. In the week, it's 30%. So we've got a big job in food to get ahead of availability, something Alex and I talk about daily. And actually, the question came up earlier in clothing as well. I think Isabel raised this. We've got to get ahead because our campaign, going back to the question from Richard, I think, on the campaign, is resonating. And everything we talk about to our customers through marketing seems to set out very quickly. So I think we're in pretty good shape, and our plan for the year is a year of growth.

Yeah, James, the only quick one thing I'd add is, Clearly, as we're coming into a disinflation environment, we need to make sure we're keeping a close eye on volumes. And you'll have seen from the market data as we've kicked into the year that that trend is working its way through.

But that's a big issue for us during the year to keep an eye on that and make sure we maintain that momentum.

Good point. OK. For Jeremy, perhaps, I mean, you're, as you've said, you're sitting on a net cash balance for the first time in many, many years. I got the impression that your plan was only to grow the dividend really pretty cautiously, but sitting on net cash and with the share price where it is offering quite a modest yield, is that something you're kind of rethinking?

Not at the moment. No, I think we've made it pretty clear in the presentation. The focus is on the reshaping M&S strategy. As Archie said and Stuart said, you know, we're looking to find new sites. We've had some super returns on the store investments and there's so much more opportunity there. to drive that uh we just said you know we've got a 10-year program around um the supply chain renewal in in in food and we've got some super opportunities in in digital technology so it's great to have the capacity to invest in that we'll invest very wisely and in a very measured way but that's where we see the priority uh versus the dividend uh change

I think, James, we've got, as Jeremy said, so many opportunities for investment. We've also got other things to do. We've got the payment of GIST. We've got pension things that Jeremy's all over. And therefore, we're very focused on better returns for shareholders in the longer term. Okay. Thanks, James.

Thank you. So, yeah, go on. No, no, that's it. Thank you. Thank you. I think we ought to go to Kate Calvert who's been waiting patiently, and then we'll go to Geoff Lowry. We can keep going for the moment. Kate.

Thanks, Archie. Just two for me. First on clothing in home, you've made pretty good progress in terms of reducing stock cover in clothing in home over the last, I don't know how many years. But you're down to 12 weeks. Is there potential to take that down further and improve availability? I suppose what I'm asking is what does best in class look like in terms of number of weeks?

I think I don't quickly share. Yeah, so I'm not sure there's a massive amount of opportunities in terms of weeks, Kate. I think as Stuart was talking back to Isabel's question, the challenge for us is around availability and making sure we've got the right depth and the right range around the sites, et cetera. So we're not really focused on the working capital. It's really more about maintaining that, but getting the offer right.

Okay, great. Thanks so much for that.

Thanks, Kate. Okay, Jeff, and then we'll go to Adam Cochran.

Keep going. Lovely. Good morning. On mns.com, your margin is eight at the moment. What's the right number and what is the unlock to get you there? Thank you.

Good question. It's a good question. It's 8.3. I think the first thing top of our mind is improved supply chain. As you can see from the results, our stores margin is about 11%. Our online margin is 8.3. Logistics is the big unlocker for that. And the other thing, we invest quite a bit in data, digital and technology. And that is a slight drag when it comes to online margin for us. But it's very important we have further investment in this area because I think we've got a big opportunity online in the medium to longer term that we're going to have to invest a bit more than others One to catch up and also to overtake when it comes to more digital and better experience online and on the app as well. I've mentioned personalization before. So our long-term aim is to really match the store's margin and overall that 10% or greater than 10% that I talked about before.

Geoffrey, just to comment on that, it's quite a noisy number, that online margin, because you've got in there, well, You've got furniture, which is moving, obviously, literally. You've also got our brands project and the brands. So the margin on the underlying core M&S product is better than the average.

And to reiterate both those comments, Jeff, I'd say we focus on cash margin, not percentage. So the percentage is. is the output the the brands uh is potentially dilutive but if we can grow brands and grow that as part of the overall offer that's the aim not to not to grow the margin for its own sake understood thank you thanks jeff um okay so shall we go to um adam cochrane from deutsche bank and then george media johanna from jp morgan good morning thanks guys um question i've got firstly

Can you just talk about the like-for-like sale outperformance of the renewal stores? What the difference between that is and the remainder of the core estate? And then the second question is on international. Can you just explain a little bit, is it certain markets where there's a particular issue? And is this related to product or is it something else? Just a little bit of an understanding of of the international piece, please.

Thanks. Thank you, Adam. Look, I'll touch on the international first, and Jeremy and I will come back on renewal. The first thing is we've identified that our partners were saying to us they want to be more ambitious on international overall. And that's most of our partners that actually expressed that. One of the biggest challenges they've got is supply chain. They order way in advance, more than 12 months in advance, their products. And they're ordering our core stocks. But actually, we need to help them and give them confidence on some of the newness that comes in. And our international partners have asked us to work harder on our supply chain to market. That's step one. The second thing, when you look across our international business, There is a bit of softening in all the markets. And we think we've got an opportunity also with our joint venture in India. Our India market did have a particular problem. It was down on the year. And we did write this in our announcement. We also carry too much stock. And we were very slow clearing this stock. And therefore, we had some write downs of stock, which we're not planning to ever repeat again. And that did impact our sales and our profit profitability in India. So my summary is when we really look at it and under Mark, who has taken over this business now, who by the way, has also traveled now to every part of our international business and met with all the franchise partners. We want to get better stock, a better mix of stock, more newness into our markets, quicker into our markets and We need to be joined up with our franchise partners on growth strategies and help them deliver that. As we say, for us, it's capital light, but our partners are very ambitious. And we do need to watch the stock control when it comes to India. I think we got just a bit too ambitious and therefore we didn't manage our stock very well. Renewals?

Just load teams, uplifts. We're actually getting good year one and year two uplifts. The other comment I'd make, Adam, is not only are we getting good sales, but it really gives us an opportunity to engineer the store and drive the store to be more efficient as well. So there's a good kind of margin improvement as well in terms of how we're managing those stores when we get into year two when it settles down.

Okay. Thanks, Adam. Now, we're going to go to Georgina and then Last but not least, Simon Bowler, and then we're going to close. So, Georgina.

Hi, thank you. I've got two, please. The first one was you've obviously done great work in womenswear. Just trying to understand how much of an opportunity you think there is in menswear and kids at the moment. I know you've made quite a few changes in menswear already in terms of ad campaigns, price points, and so on. How far through that journey would you say you are, please? And shall I ask my second one now or later?

Yeah, do the second. Okay, quickly.

Yeah. Second was just a quick one, actually, around the recent delivery delays that you seem to have been experiencing in closing and home. If you could just explain what's driving that and whether that issue has been sorted out, please.

Oh, that might not be quick. Anyway, go on.

You're ahead of most in asking for that. Okay, let me start. I mean, women's wear, there is no doubt, we've been really pleased with how our women's wear is resonating in the market and with our customers. We've grown share in women's wear, and we continue to do so. If you look at last year as well, women's wear was up 6%. Men's wear, I think, was up 4%, and kids was about 3% up. So all of those key categories are growing, but within that, You know, there are some standouts. Our newness in women's wear is selling incredibly well. But also our core, like denim, was up 15%, knitwear up 12%, etc. So women's wear is strong. We see that becoming stronger. We've got some very exciting work this year. I think the summer range, the autumn-winter range is stronger than ever. on style, on quality, on value. And we've got some very exciting collaborations, but I've got a gagging order and I'm not allowed to talk about. But I'm confident that we will continue to see that grow. I think in menswear, being the number one menswear shopper, Out of all customers, I think menswear are really doing well. We're getting much better product. If menswear is second in market share in the market after one key competitor, online is a focus for us because our online market share is fourth. And therefore, we know there's a bigger job to do. to talk about and market our menswear online. We're seeing some tick up. Autographed menswear is already in the last few weeks doing incredibly well. And formal wear last year was pretty soft, but already our new suits, I've just bought three of them in different colors, but our new suit is already resonating in the last few weeks. So I think menswear is on the right track And we've always talked about kids wear because we know if we get kids wear right, then more mums shop in M&S. And that is a growth opportunity for us. We've made progress last year, but I think now I've looked at the strategy in kids wear. It has to be a year where we see that strategy start to play out, which basically means less promotions, better style, better quality and better value. And day wear is the big area we're focused on when it comes to kids. Delivery. We didn't answer that. I should call out the fact we have had a couple of small problems recently. Donington, we recently upgraded our warehouse management system, and that did cause a slight hiccup in the communication to our other system, which we call WCS. And what really meant, Georgina, is that interrupted therefore the service to customers for those four days, and it interrupted our proposition because we had to delay and extend our proposition. The good news is we're through that. We rectified it quite quickly, but it does show us that we have quite a lot to do when it comes to our technology. So it's recovered now, and we apologize very quickly to our customers. We recognized it, and the good news is most of them came back within the week and reordered.

Okay, thanks, Georgie. Okay, thanks. Right, we're right out of time, but Simon, you've been waiting very patiently, and we'd love to hear from you, so back on.

Thank you, Archie. A couple of quite niche end of call questions, if okay. I'll do them both at a time because I think they're both quite quick. First one, it looks like you've delayed a couple of pension payments and there's some talk around negotiations around them. Can you just add some colour around what the nature and status of those conversations are? And then the second one is just on the new M&S Bank agreement with HSBC. If that kind of plays out as you hope, how should we see that playing through your P&L from here? Can we expect some profits from M&S Bank to start reappearing?

both good ones for jeremy to end on hi simon so um when uh before my time during covid we agreed with the pension scheme we'd um postpone payments into the scheme um to protect the balance sheet but we were committed to putting 200 million pounds back into the pension scheme uh roughly 100 million last year and 100 million this year slightly different phasing but then that order of magnitude As we look further forward and looking to the buyout of the scheme and looking at the current triennial valuation, what I'm looking to do is have a conversation with the pension trustees to look at smooth those flows. We're currently in those conversations. We'll be able to update you once those are completed. But you're right, in last year, rather than the 100 million roughly, we put 40 million in. My expectation is if we can get the negotiations resolved, it would be a similar amount this year, and then we'll make contributions leading towards a buyout. But we can update you once those discussions are complete. And then on the banking arrangements, what we're doing with HSBC is looking to – to give ourselves a bit more flexibility. If you remember, M&S's banking arrangements were sold to HSBC back in the day. What we're looking to do is give ourselves a bit more latitude, particularly in the areas which relate to our customers and into the stores. In the short term, there won't be material impact on profitability. But over time, what you'd hope is that we'll be able to drive that financial services part of our business a bit harder. And again, we can come back to you on that when we settle down. We've only just literally signed the deal. But we can come back to the half year as to what the plans are and where we're looking to take it. It won't be material this year, but we do have some opportunity to drive that further through our core business as opposed to it being run by HSBC.

It gives us more freedom, a bit more, Simon, as well, like bringing the loyalty and bank together, things we can do now that we couldn't do before. So that's some opportunities for us.

Okay, Simon. Thanks ever so much. Okay. Well, look, on that bright and cheery note, I think we'll finish. Thank you, everybody, for joining us, and obviously the team is available throughout the day to follow up on questions. Thank you. Thank you, everyone. Have a good day.

Thank you.