Marks and Spencer Group plc

Good day and welcome to the Marks & Spencer Annals Call. This meeting is being recorded. At this time, I'd like to hand it over to your host, Archie Norman. Please go ahead, sir.

Well, good morning, everybody. It's Archie here, and I'm joined by Stuart and Alison, obviously. Thank you for joining us today. I was going to say great to see you all, but I can't see any of you. So, look, I think This is a set of results where we slightly feel we've said all there is to say about it, but I'm sure you'll think of some interesting questions. So let's crack on. Stuart is going to make a brief introduction, and then we'll take whatever questions there are. Thank you, Stuart.

Well, good morning, everyone. Thank you for joining us. As Archie said, Alison joins me in the room today. We've also got Fraser and Helen, so they're on hand for any follow-up questions. you may have throughout the day. I'm going to start with a look back at the half from April to September before moving on to give you some detail on where we are today. I will then look ahead to Christmas before finishing with the outlook for the rest of the year. I want to cover three objectives that we set out a couple of months ago, which were firstly to regain momentum, secondly, get back on track with growth, And thirdly, accelerate the pace of our transformation. So let's start with the last six months. The first half, as I've said, was an extraordinary moment in time for M&S. I'm not going to go over all the old ground today because I briefed everyone on the incident during our call in May. But everything regarding the incident has been well documented and we are now getting back on track. Our customers have been fantastic as always and I want to thank them again for their continued support and loyalty during the period. I also want to thank our supply partners and of course our colleagues across the whole of M&S who showed real determination and grit. 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 the incident and deal with it. At the prelims in May, we anticipated the material impact of the incident on group operating profit to be around $300 million this financial year, and we are broadly in line with that. I can confirm that this is mitigated by $100 million of insurance that we claimed and received during the period. 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, and it has no impact on our share of the business. Now, let me just touch on the headline numbers because across M&S, group sales grew 22% versus last year, but that was driven mainly by the accounting inclusion of a consolidated Ocado retail. Excluding the consolidation of Ocado retail, M&S sales were broadly flat with last year. Group profit before tax and adjusting items was $184 million, and excluding lease liabilities, we are still in a net funds position. Now, we put customers first and prioritized availability, which did drive waste and therefore increased costs in our food business. With our systems off, we didn't have a clear stock view, and of course we were using manual processes. But we took the decision to allocate stock out, fill the shelves, and that was the right thing to do for our customers. Despite the disruption in food, the business was resilient with robust sales growth of 7.8% in the half. Fashion, home and beauty sales in the half were down 16.4%. We had a particularly tough time here due to three key challenges. Firstly, we paused the online operations for just over six weeks and then brought them back gradually. Secondly, this impacted Click and Collect, which affected footfall into stores. And thirdly, supply chain disruption caused availability issues. As I said, this incident was an extraordinary moment in time. But change on the other hand is not a moment and in M&S change is a constant. We have a clear plan to reshape M&S for continued growth and we have never lost sight of this despite the disruption. That is why we accelerated our transformation during the half with investment in our three priority areas, restore rotation and renewal, supply chain modernisation and technology transformation. On store rotation, we opened 15 new or renewed stores in the first half, and we'll open more than 20 in the second half. This includes opening two flagship four-line stores, Bristol Cabot Circus, which opens next week, and Bath, opening February. On supply chain, in August, we announced a new 1.3 million square foot automated food distribution center in Davitry. which opens in 2029 to boost capacity for future growth, lower our cost to serve and improve product availability. A new regional food depot also opens in Bristol in 2026, increasing the proportion of stores served from their nearest depot. These investments are helping us get ahead of the growth curve and build a bigger, better food business. And on technology, we use the incident as an opportunity to strengthen our technology foundations and fast-track some timelines, including the new fashion home and beauty planning platform. Our job is to ensure we continue to transform and grow M&S while maintaining a strong investment-grade balance sheet. That means being disciplined in our investments and their hurdle rates. Let me add a little colour to each of our businesses In food, sales and market share growth are back on track. With three years of consecutive monthly volume growth outperforming the market, more customers are filling up their baskets at M&S more often. In fact, the latest Cantile figures show that M&S is the fastest growing store-based retailer in volume over the last four-week period. In the last 12 weeks, we served 800,000 more customers year on year. In the half, customers made 14 million more shopping trips to M&S Food than the same period last year, demonstrating more people are shopping with M&S Food more often. You've heard me talk about our strategy protecting the magic and modernizing the rest. In food, the magic means going to great lengths ensure the absolute best quality the leading on innovation and delivering trusted value our obsession with delivering world leading quality continues to drive sales take our upgraded italian mills range with sales up a third for example and our focus on innovation brings new products and new customers to mns our viral strawberry sando sold a million units in just four weeks In fact, we launched 700 new or quality upgrade products in the first half of this year alone. At the same time, offering trusted value is at the very heart of what we do. Sales of our value ranges are up 29%. Alex and the food team have made good progress, but we have so much opportunity ahead of us as we work towards becoming a full shopping list retailer and doubling the size of this food business. Now turning to fashion, home and beauty, where the recovery curve in this part of the business has been slower than in food. As I said, due to the pause in online sales and stock flow disruption. But now with online backup and systems running, we're making progress every day. And over the coming weeks, we expect stock flow to settle into a more normal rhythm. Despite this, we use the period to make further progress in improving our product ranges because outstanding products sit at the very heart of our strategy for fashion, home and beauty, with the M&S magic being our combination of quality, value and style. We consistently lead the market in value and quality, and now I can say for the first time, based on YouGov report yesterday, we're number one for style too. And the latest Cantile figures just out. show M&S number one in fashion market share in the last 12 weeks. This includes leading the market for women's wear and lingerie. So look, we're making progress and this is encouraging, but there is so much opportunity in this part of the business and there's lots for us to go after. John, as the MD, has been here now six months and has started to accelerate the strategy. being laser focused on the big rocks that we haven't yet really tackled, mainly the foundations of the business from sourcing, through supply chain, through merchandise planning and accelerating our online performance. In international, sales were down 11.6% due to our international websites being offline and shipment disruption. However, during the second quarter, performance improved as we restored systems and websites. Mark and the team have now made encouraging progress, resetting commercial terms with some of our franchise partners, which has helped enable investment in trusted value. We expanded our partnerships with Zalando and Amazon and put in place new wholesale arrangements, for example, launching lingerie in Davy Jones Australia, already performing ahead of plan. is it continues to be a growth opportunity in the medium term, but performance over recent weeks has been encouraging. Touching on Okaido retail, sales were strong, with growth of 14.9% over the half, driven by sales of M&S products, which grew faster at 20%. Sales growth has been encouraging, but we know there's lots to do to the path of profitability. Key opportunities include improving delivery efficiency with more same-day plots available, extending picking hours and rolling out further automation. These initiatives will boost the capacity over the next few years and support the path to profit. To finish, I will turn to the outlook. 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, quality, innovation and, of course, in fashion style. We will continue to drive our transformation and to structurally reduce our costs to offset external headwinds. For context, during the first half of the loan, the increase to national insurance contributions and the packaging tax cost an extra $50 million. But there is much in our control. and the increase in our cost reduction ambition will help to address this. We're confident we will be recovered and fully back on track by the end of the financial year. In the second half, we therefore anticipate profit at least in line with the prior year as residual effects of the incident continue to reduce in the coming months. Our plan to reshape M&S to 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 that's what's exciting because there remains so much more to do. And for us, it's all to play for.

I'll hand back to Archie for questions. Brilliant. Thank you, Stuart. Okay. We've got a few hands up with questions. So, let's just crack on. Frederick Wild from Jefferies. But by the way, could you be helpful if just one question at a time because our memory is not very good and no more. We'll take a couple each. All right. Frederick.

Perfect. Thank you and good morning, Archie, Stuart and Alison. So first of all, I'm going to ask a terrifically boring question, I'm afraid. Could you give us a few more details on October trading in Fashion Home and Beauty? We want some of the overall sales rate towards how it's seen versus market.

Well, look, I mean, top line, as you can see, the market has been soft. You can look at the graphs in the R&S because we put those in to help people understand. And there's a couple of things. I do think people are holding back a bit because of the budget, but also the market is soft because the weather, I'm looking here, I'm in waterside and it's bright sunshine and autumn hasn't even hit yet, never mind winter. So the market is somewhat soft and the market is very promotional. I think the latest stats I saw was high promotional participation averaging 50% already. Look, it is behind the curve slightly. I think there's some good news because we're not quite where we want to be yet on fashion, home and beauty, but every day is getting better. And I think by the time the cold snap arrives, we will have pretty good availability, especially around fashion. So I think it's working in our favour at the moment.

Thank you. And then beyond that, with the at least in line guidance for half two, can you help me understand the sort of moving parts within that, what could get you above being in line? And is it the consumer backdrop? Is it the speed of your availability? How should we measure that and think about that?

I'll give a high level and hand over to Sir Harrison for some detail on this. But look, in half two, if you just compare last year, I think in food, We're on track. I mean, it could be a bit better. We're planning for a good Christmas. But, you know, I never like to over-promise and under-deliver. But we're getting back to stronger growth in food. And it's all to play for, as I say in my opening. In fashion, home and beauty, you know, we are concerned about the weather. It is something that I don't like to talk about internally, if I'm honest. I always say don't blame the weather, but on an analyst call it is helpful just to bring it to life because if we do have a cold snap, I think we'll be pretty well set up. So my summary is food could be a bit better and fashion at home could be a bit softer, but we're planning for a good Christmas and we'll see. I'll hand over to Alison for some detail.

Thanks, George. So really I would say it's all about the pace of recovery in both businesses. As Gerard has already said, we're gearing up for a strong Christmas in food and then a good new range to launch in the fourth quarter. All of the systems that we need now to manage waste and stock loss are fully back and each week sees an improvement in waste and we are getting to grips with it. In fashion, home and beauty, I think for the third quarter, as the systems come back online, they are now all back, but stock is not in the right place everywhere. If you think about all the moving parts in our distribution network, getting stock out of ports into the right DCs that allow us to fulfill online orders as well as dispatch stock into stores, that is still being worked through in the third quarter. we expect it will be fully done, certainly by the financial year end, but operational in the fourth quarter as well. And then Ocado, we expect to continue with their strong sales, international really, to have a good strong year. And as far as cost is concerned, you know, we continue to focus on cost elimination, as you've already heard. So really, that is all playing into an expectation that at least we will be flat in the second half to the comparable period last year. And then you'll have a judgment to make as to where to take us up from there.

I think Alison Frederick just quickly raises a good point on food waste. We're getting back now online. Clothing, we're just mindful we're holding a bit more stock for the second half. So we need to manage that. There is some good news on new stores in H2. We've got ten new food halls, four food store extensions, seven renewals and two new four-line stores. So there's some positives. I think my summary would be we're confident we're going to start FY27 in a good place.

Okay. Good. Good question. Thanks, Brett. James Anstead. James?

Good morning. So you've had this cost of 324 million in the first half of the year. I just wonder, you're clearly now getting very close to being back to normal, but how much more do you think that might take up in the second half? And associated with that, and I do appreciate fully that you rarely give PBT guidance for the current year, let alone next year, but if effectively you're guiding for PBT of at least 652 this year and the cyber impact, which is probably going to take up a bit from 324, is there anything wrong with starting, you know, my spreadsheet for next year with a PBT of about a billion? I appreciate there's a consumer outlook that we have to take a view on. And, you know, there's hopefully some underlying growth in the core M&S business. But are there any technical bits, Alison, you would say that's far too naive a starting point? Thank you.

Well, I'll start with the first question, James. So above the line in terms of any lingering impact on trading. You've already heard all the detail there. There's nothing beyond everything that we've set out, which is largely about the pace of recovery, particularly in H&B, and making sure that, you know, stock is in the right place. And that is in relation to the $324 million impact. Below the line in adjusting items, there would be about $30 million of incremental cost in the second half. as we finalise standing down all of the incremental resource that we've talked about earlier, largely replacing offshore B&T colleagues with onshore resource augmentation. That will carry through into the first couple of months just as we stand that resource down. But beyond that, there's nothing. And then with respect to your second question, James, no, not really. The only thing in addition to – there's nothing technical. from our side, as Stuart already said in relation to the last question, our expectation is that we are fully back to normal by the fourth quarter of this year, so that FY27 is a clean, unimpacted year, and the forecasts that you had previously in place are good for FY27. There's nothing beyond that.

I think, James, just to build on that, only a couple of summary points. on the numbers, but there's no change to our view for next year. We're in line with sort of where the consensus is currently, free to take your own view on that. But I would say we've got quite a bit of recovery in the next six months in fashion home beauty, and the consumer outlook is still uncertain. We're getting a lot of feedback about the sort of nothing presentation yesterday. Everyone's waiting for the 26th of November. And so the next six months is going to be a bit uncertain. We're hoping to start fresh, as I said, in FY27 and be back by then.

But I wouldn't overdo the ambition. Okay. Thank you, James. And if you need any help with your spreadsheets, Fraser's 10 is for you. I hope you've got a computer program. Let's go to Anne Critchlow, and then we'll see Clive Glass has joined us, so we'll go to Clive afterwards. Anne.

Thanks. Morning, everyone. I just wanted to ask about the spring-summer fashion stocks from this year. Is there any stock overhang, as in sort of not marked down or sold through, anything you're overwintering, anything that might need to be written off or down in the future, please?

Well, it's a good question, Anne. I mean, we have provided for that in the numbers. If you look at our stock cover, I'm a few days out. But as of a few days ago, we had 13 weeks stock cover. So that was two weeks more than last year. So we have provided for some of that in H1 already. And we are holding more stock as of the half year. So it's in the H1 gross margin. You can see where we've provided for it. And unfortunately, my whole strategy about not having a sale is not going to be achieved this year because when John joined us as the new MD, I said one of the key objectives is everyday pricing. Let's get rid of sale and not do it. And then, honestly, within one week of him joining, the incident happened. So there's a lot to go after, though, and it is a bit uncertain, but we provided in H1 – And now we'll see how winter trades, and we are going to make sure we sell our way through it in H2. And that's a bit uncertain as we sit here today in the sun.

Okay, that's helpful. Thanks. And could I ask a second question, please, on systems? So just wondering to what extent there's been a temporary fix that will perhaps need redoing. and to what extent the cyber incident might have accelerated what you were going to do anyway and perhaps even made it simpler and better, and any examples you can give?

Well, I'll start, and maybe Alison has some thoughts as well. Our biggest priority for technology is recovery, and as part of that, there are some things, by the way, that we didn't bring back up. I mean, there's a system in food called RDA, that was very old, very clunky. It used to basically give better splits of products in our DCs in different crates. Actually, we haven't brought that up because we're going to buy a more simpler, modern system. But really, it's all been about recovery. And now, if I'm honest, it's all about resilience for Christmas. So there are some things like that food system. In John's business, he's taken a fresh look at the O9 planning platform. and has actually sped that up. I mean, it's going to take half the time of what it was going to take. And there are some other things we're doing, like investing in loyalty, which really we're playing catch-up on. So my summary is we haven't really accelerated a lot. We haven't really opened some systems that we thought we didn't need. but really our transformation is going to get back on track by the end of the financial year. And we'll also talk about this at the Capital Markets Day.

Brilliant. Thank you.

Thank you, Ash. Thanks, Anne. Clive, we assume that you – I didn't want to apply you late for the meeting, by the way, but we assume you're celebrating in Liverpool.

Indeed, Archie. I was actually on on time, but your systems clearly haven't got up to speed yet. And also, Archie, it's great to know that you're going to be hanging around Paddington for a little bit longer than may have been the case, which is good news for everybody in my book. So the first question, if I may, I'm going to try and stay away from everything from the spring. And I know you have a Capital Markets Day coming up, but Stuart, in your video this morning, you talked about M&S being a shopping list grocer. I just wondered, you know, what does a firm need to do to reach that aspiration? And what does it actually mean to M&S?

I mean, in simple terms, good morning, Clive. Good morning. In simple terms, what we're realizing in our bigger food halls, where we've got more of a grocery range, That includes frozen food. Our customers are relying on us to do a fuller trolley shop. I see this in my local store in Clapham, where over half of the shopping trips are in big trolleys and the other half are baskets. And if you look at all of our data, not just recent, but the trend in the recent years, more customers shopping more frequently, and our spine of the basket, which we call centre of plate, the key commodities customers buy and could buy elsewhere, that has actually grown in this half by 12%. So the key to this is the store rotation program. As you know, we're only 4% market share. I always say to Alex, it's still piddly, is the term I use, it's still small, which really just encourages us because we've got more than 50 food stores in the pipeline already approved. And that means that gives us confidence. Now, one of the key investments that we made during the last six months was, which I called out in my opening, and it's in the R&S, which is our Daventry New Distribution Centre. Now, that's 2029. But the reason we needed to commit and invest in supply chain is so we get ahead of that growth and enable that growth. So I think we're well on track. The food business is in a strong position, whether it's building a better supply chain, the work Alex and the team are doing on what we call factory resets and fortress factories, the strategy about really close partnerships, the work we're doing on range, and importantly, the work we're doing on value. We're tracking all of those top 200 items every day. inflation is a challenge for us to manage with the extra costs, headwinds that not just us, our suppliers have had. That all gets passed through to us and it becomes a challenge. But our value lines are up 30% in the year and our value perception has the greatest increase of any other grocer in the last three years. So all of that added together should enable the food business to be more of a bigger shopping list retailer.

Thank you. And of course, I think you also said you still plan to double your market share in your statement this morning. And then in a similar vein, if I may, you talk about also seeing the opportunity to double your online sales in fashion, beauty and home. And I guess, again, what are the mechanics by that? And just as a sub-question, I presume you still have ambitions to build, to grow your in-store activities in this respect as well.

Well, I think the key thing, online sales, I mean, we said double the online sales, I think, from FY22, which were 1.1 billion. And our plan is to double that. At the moment, only a third of our fashion, home and beauty sales are online. And, of course, that's been impacted in the last few months. that we have not lost sight of that long-term ambition and that's very clear. Don't forget in home and beauty our participation is actually very small and it's not going to be the biggest part of our strategy but there is opportunity to grow and improve our home offer and we will be doing that over the coming years and resetting our beauty categories which is under review now. I think the biggest thing, just to go back on food, just to clarify, we said double the food business, we really mean sales and hopefully that leads to a bigger market share of course. I think we're in a good place online. We serve over 21 million customers but let's be really frank, we have got to do a better job online. We want to do much better on service, much better on availability, much better on personalisation There is no shortage of demand when it comes to our customers wanting more, whether it's in-store or online. So we've got to be quite ambitious, but there's quite a lot to go for over the coming years.

Do you see a switch out of the store into online, Stuart, just to finish, as part of that process?

Well, I'm hoping not, but I'm hoping we hold a lot of our stores flat at the same time. I mean, online market share for us is 7%. Stores is higher at 12. And obviously, the focus is going to be online. If we could hold the stores, that would be good news.

Thank you. Thank you. Sorry to interrupt you, Archie.

No, no. Thank you, Clive. Good clarification. Just to be clear, the doubling of the online is from 2022. So that will take us to 50%. The objective gets 50% of total sales. Thanks, Clyde. That's great. Let's go to Georgina Johanalan and then we'll move on to Richard Chamberlain. Georgina?

Hi, morning. Thanks for taking my questions. I've got three, please. I'll ask the one at a time. The first one was just in terms of the fashion home and beauty sales, obviously, you know, I appreciate the consumer environment and so on, but it would be good to understand what you've got planned in terms of any activities to sort of re-engage that consumer and also the timeline on that because presumably you don't want to be sort of overly re-engaging at a time when availability is still a little bit below where you'd like it to be. That's my first one, please.

In simple terms, I mean, where you're dead right is we could probably say we re-engaged our customers too quickly. before we were really ready with availability online. But we've got no issue with customers' engagement, but we have got to get the stock flowing better. And the only thing working in our favor, by the way, is that, as I said, it's very sunny here in Waterside. I don't know where you are. And we're hoping the cold snack will arrive just in time when our winter product arrives and we're ready to serve. But we don't have an issue with demand. But we are a bit slower than we would like in getting the stock from supply through to our ports, through to supply chain, through to stores, through to online. And this is John's priority as we plan for Christmas.

Thank you. Perhaps just a follow-up one there, Stuart. When you're saying you don't have an issue with demand, is there something that you can sort of point to for that? Like, for example, is web traffic a lot stronger than we can see in terms of the actual sales data and perhaps Is there anything sort of tangible that we can point you there?

Well, it's a good point. The reason I don't say there's a problem with demand is we're holding our own. In fact, our market share has improved in the last four weeks if you look at Cantal. If you look at the YouGov results yesterday, it's encouraging. We're back to number one on brand buzz, and as I said, for the first time ever in history, we're number one on style. Now, that doesn't mean we'll always be number one on style, but it is a first. And if you look at traffic, I haven't got the number. I can't remember it, and there's this page at the start, but we'll get someone to find the number. But traffic is actually sharply up on last year. To your point, online sales are up over recent weeks. Transactions are up. But we have got to get a better availability. By the way, a session I had with Maddy and Helen just last week, you will probably notice this, but we do have a bigger demand for smaller sizes. And that's been a trend over the last three years. But actually, it's one of our biggest problems today online. I've just been given a scribbled note from Fraser that says September traffic was up. Last week, 17% on last year. Traffic September up 21% in September. Last week, up 17. Okay.

That's super helpful. Thank you so much.

Thank you, Georgina.

Another one? Yes, if that's all right, please. It was just on CAPEX. I guess just understanding if I was understanding right in the release that it's actually going to sort of 650 to 750 for this year, what we should be looking for in the outer years and why we're seeing that increase, please?

Okay. It's a good question. I'll hand to Alison.

Hi, Georgina. Thanks. So you'll be aware that we have continued through the half with our strategic programs investment, so in supply chain and stores. and in DNC. Obviously, mindful to protect our investment grade rating, and that is a key priority. But as the cash generation comes through, our ability to maintain that investment, see the returns coming through, invest, as Stuart said, in the online experience, both on the website and on the app, behind growing that traffic means that we can increase the envelope slightly. depending on a particular year, there will be some disposals that we can offset that with. But, you know, we are a growth business. We have opportunity to invest behind, and we'll talk a lot more about the detail behind that at next week's CMD. I think George, sorry, go on. Just all while aiming to grow the dividend as you've seen today.

I think that's right. I mean, I would say strong discipline We've got clear hurdle rates, Georgina, but as you know, some of the big bumps in that capex will be things like the NBC, which we've already announced as well. And the focus areas are stores, supply chain, and D&T, and that includes online as well.

Right. Thank you, Georgina. We're eating up the time, so I'll just ask people to go to a bit of a clip if we can. Richard Chamberlain from RBC, and then we'll go to Adam Cochrane in Deutsche. Richard.

Thanks, Archie. Morning, everyone. I'll stick to two. You've got your CMD next week. So both on the clothing side, please, what's the timetable now for upgrading Sparks next year, I think you're talking about, and what needs still to happen for that to take place? That's my first one.

Thank you, Richard. Well, it's a short answer because in Sparks, we had a plan six months ago that we literally just paused. and said we will come to it when we're through these last six months and the incident. And we've only just started to put resources from D&T back onto that program. What that will focus on is real personalization. It will focus on experience, but it won't be a big bang relaunch. There will be some good news, some good partnerships, but it will be a better way of engaging with customers and giving them a more personal service. It won't be a reward, i.e. a different price architecture for those customers. I've never been a fan of loyalty card pricing. We research this all the time, but for us to stand out from the crowd and try and deliver better value and value every day is an important underpin to our strategy. But really, this is all a way of getting closer to customers. It's not going to be one big bang. It will be a relaunch in March or April and then basically every six months we will continue to improve loyalty over the coming years.

Got it. Okay. Thanks, Stuart. And my other one is just on marketing spend. I'd just be interested in what's been happening on that and thoughts on whether you need to step that up now to continue sort of regaining the top line momentum in clothing I think you re-phased some marketing from sort of earlier in the summer to early autumn, if I'm not mistaken, I mean, for obvious reasons. But just thoughts on sort of marketing, whether that needs to go up a bit now.

I mean, my summary for this, it won't be more spend. I'm not giving our marketing team any license to spend more. But it is about re-looking on how we spend it. I mean, for example, there is no big fashion Christmas advert this year. We've decided to do more product ads, more through social. There's different ways we want to use YouTube and social media. So I think it's about spending it differently. The thing we've been conscious of and we're watching is making sure we spend it in line as product availability improves constantly. fashion, home and beauty mainly. In food, we're on track and we're spending in line with the budget we laid out. Got it. Okay. Thanks very much.

Okay. Thank you, Richard. Okay. We'll go to Adam at Deutsche and then I'll take a couple more. I think we're going to run out of time, so I know everybody's been waiting very patiently, but Adam, crack on.

Good morning, guys. Just the first one, you talk about the confidence of clothing being... back on track. I know over the summer, you possibly lost some customers to other retailers. Is it apparent that you're already regaining those customers who have shopped to other retailers and are now coming back to M&S?

Thank you, Adam. Well, I'm saying getting back on track. So I haven't said we're back on track. We are planning that by the end of this financial year, Our fashion, our home and beauty business will be back on track. I mean I think the biggest issue we had obviously through the incident was the lack of availability and the online business being paused and therefore that obviously did set us back. But as I said at the start, we're back to number one market share in the last four weeks when you look at Kantar out this morning. So we're back to number one. Our product is definitely resonating. Our value is resonating. And as I said, we're number one for style on UW, which came out yesterday, for the first time ever in our history. So you would have seen in Kantar the improvement every month. And I think we put some of that in the R&S. So the reason I don't want to get over-promising is there is a tendency for us to say, isn't this great, we're all back to normal, but actually it takes a bit longer in fashion for the stock to flow, for the systems to reconcile the stock so we know exactly where it is. And we are carrying a bit more stock than we would like. We've got to get through that. We've got to look at what's going to happen over autumn, winter. There's no autumn yet. It's not an autumn yet. Let's hope for a cold snap winter. and then we need a really clear plan as we get into the Q3, Q4. So I think it's all to play for. There's no short of demand, but stock flow has to catch up, and it's on John and his team's priority list. We go through it daily.

Okay. And on the second question, on international, and just very quickly, the expanded agreements with Amazon and Zalando, What proportion of the range are they able to access? How excited are you about increasing the growth internationally via the aggregators?

I think it's a very good question. What I would say is it's very, very small. It's really testing and learning. If you look on there, you'll see on Zalando and Amazon, it is encouraging because the brand resonates, so we know that. and it's slightly ahead of our plan, but it's very small in the grand scheme of things. But I think in a year from now, this will be a good opportunity for our international business as we get more of our range on both of those sites. And I think more broadly, what Mark and the team are doing with our partners will set us up for future growth. The reset with our franchise partners, in terms of how we do the agreement, encourages our partners to invest. It encourages our partners to deliver better value. And in some markets, I mean, last week, I was looking at the UAE, and food is very small and the volumes are small. But just by right pricing, that business was already up 70%. Now, I will say 70% up on things that never really sold much volume. But I think resetting all of that is good news. And the third, the wholesale partnership, it's not just about Percy Peaks in Target, although the sales of Percy Peaks in Target US are way beyond what we expected. So we're now putting more runs of Percy Peaks on. But the wholesale partnerships, I do think in the medium term is a growth opportunity, whether it's Davy Jones lingerie, we're going to launch women's wear as well soon, then men's wear. So I think there's good opportunities in the medium to long term for us to be this global brand that we set out last year. Okay.

Thank you. Well, now look, we're over time, but I'm going to go to Monique Pollard, because she's been waiting very patiently, and then Warwick O'Kines, and then we'll go to Strawline. Monique.

Thank you. Thank you very much for my question. The first question I had was just on this availability issue. So what I understood that you were saying, Alison, is that the, am I right to understand that the availability issue is more acute in online for fashion, home and beauty than it is in store? If you could just give us some colour on the sort of, you know, the differences in availability still versus online.

Not particularly, Monique. availability was affected by the slower stock flow and that applied to both businesses. In online, it's slightly compounded because we don't fulfill online orders from all of our DCs, so there was that additional complication, but really both businesses were impacted.

I think the summary, Monique, is we're about 5% off at the moment where we want to be, but every day is getting a bit better. Our online availability this morning, for example, was down 1% from last year. So every day is getting better, but it is split between stores and online.

Understood.

Your second question.

Yes. The second question, just a quick one. It's on the UK budget and the potential for business rates increases. So if we do see... business rates increase for rateable values over 500K. What kind of impact does that have on your cost base on an annualized basis, please?

Well, that's a complicated one. I'll hand over to Alison on. I think the couple of things to just summarize, as you probably know, is this half year it was at 50 million, and that's only on two things. One, the packaging tax, and two, the increase, what I call the double whammy on national insurance. So that was $50 million for the half. When you add that to living wage, which for us, we already plan to increase wages for frontline colleagues. So we look at that as a good cost. But that is $150 million for the year. I think what really worries us is what's coming down the line. You know, we have this deposit return scheme, which is a huge headwind. a challenge in stores operationally. The setup of that is nearly 30 million. Running that is a 7 million cost every year for these huge monstrosities of a unit in every store for customers to bring plastic back. And by the way, in the Republic of Ireland, they break down every five minutes. And on top of that, you've got other big impacts because it's not just about us. It's all of these impact our farmers, impact our suppliers, and then all of those costs get transferred to us and then we try and mitigate them in order to provide value. So, you know, and I think it's not just that, it's other regulatory stuff. So we've been working quite closely with people in government, talking to them about these challenges every day, hoping to influence in some way. I've met Rachel Reeves a few times now, but it is top of our mind and we're hoping Well, we're preparing for the worst on the 26th because everybody, you know, it's a bit of a nothing speech yesterday. We all sort of finished it saying, well, what did that really mean? But we're sort of planning for the worst and hoping for the best. Alison, on our particular numbers, what?

Yeah, so I would just say that at the moment our business rate bill is about 180 million pounds a year, so it's clearly material talking about that one specific item. And obviously any increase also has the potential to be material. About 60% of our properties have a rateable value of over half a million pounds. So the rumored break for larger stores would clearly be welcome for us. But that's about the scale of the bill right now. That's about 7 million. There's about a $7 million saving if we were to get that break, yeah. But I think the bigger point really is in the aggregate of all of this new government-induced incremental charges. The EPR, for example, a loan that Stuart talked about, was a $40 million charge for the year. The deposit retention scheme, big one-off up front. NIC, business rates, the apprenticeship levy. we can only use about 20% of it, and that costs us about 7 million pounds a year. So it's the combination, really, of all of these additional regulatory costs.

I think the only good news, Monique, for us is there's a lot in our control. Our investment in things like supply chain automation will help give better productivity. So that's why we've increased our cost-saving program. So there's a lot for us to go after as well. Okay.

Well, very good point. Thank you, Monique. Right. Look, apologies to those who haven't got in. I appreciate people have been waiting, but we're running down the clock. And we will make sure we get back to you, those of you who've been waiting. So appreciate that. Last one, last shout from Warwick O'Kines at BNP.

Thanks, Archie. Morning, everyone. Just two quick ones to finish off, and I'll do them both at once and test your memory, Archie. There's a quick one. Firstly, on costs, you may have answered this already, Stuart, but you've raised the structural cost savings target to $600 million. So is there anything particular to call out on where those savings have come from? And then secondly, could you give us a bit more detail about what your customer barometer is telling you? Thank you.

Okay, I'll kick that off. On $600 million, we said by FY28, Mainly through end-to-end supply chain. There's quite a lot in our plans for that. And also some of our factory-to-floor programs and store productivity programs. By the way, we've never really got under store-friendly deliveries, which means our stores spend a lot of money unpacking things three or four times. And the good news is it's the first thing John Little raised when he did his first month in stores. So whether it's supply chain or end-to-end through our stores, Look, it's a challenge, but there's plenty of us to go after on the cost slide. That's why we set the $600 million to start to mitigate some of the extra headwinds coming our way. In terms of customers, I mean, the good news is we talk to quite a few customers every month. We have a collective where we talk to about 40,000 customers, and we ask their view, and we have 1,000 customers in fashion, home, and beauty. We get their views. There's never big changes, I have to say. The October survey really calls out customers talk more about rising costs. They talk a lot about the budget. There is a lot of questions. Why does it take so long to set the budget? There's a lot of emotion in there about blaming the past all of the time, that this is going to be a break in the manifesto and therefore doesn't mean I'm paying more tax. Pension, slightly older customers have pensions on their mind and capital gains on their mind. So there's no doubt that takes the big part of the feedback we get. But at the same time, it's not all doom and gloom because when you get those issues on the table, what actually comes out is, well, we're looking forward to a bigger, better Christmas. And actually, we measure what we call excitement and positivity about Christmas and how you plan to celebrate. And that, for our customers, of which now there's a few thousand in that pot, as I said, that's been the highest it's been. And if we just look at the early indicators, Christmas food to order is already up 7% on last year. We launched our party food in stores. It's always an introduction. but that exceeded our expectations. And even if we look at some of the other things like Christmas decorations or the gift shop, I still think we need to relaunch this in a much better way in the years to come. But even that's trading 20% up. The softness is in fashion, but that's because of the weather and us catching up. But that's really the summary. I hope that helps.

Thanks, yeah. Thank you very much. You're welcome. Good. Well, look, thank you so much, everybody. All good questions. And there's a lot we could still talk about. But I think we should draw a line there. There's a lot of work to do, obviously. And just to remind you, those of you who are coming or able to watch, we have got a Capital Markets Day next week. By the way, we're not really expecting to mention the C word on that day at all. Stuart's looking at me grinning. And So it's going to be a forward-looking event and a chance to be able to meet the management team. So I hope those of you who are coming will enjoy that. So we look forward to seeing you all there or thereabouts shortly. Thank you, guys.

Thank you, everyone, for your support and questions. And please shop with us this Christmas. Thank you.

Thank you very much, sir. Ladies and gentlemen, that will conclude today's conference. Thank you for your attendance. You may now disconnect. Have a good day and goodbye.