Marks & Spencer Faces Uncertainty After Cyber Attack, Despite Encouraging Results

Marks & Spencer Group PLC has witnessed a tale of two stories after its recent cyber attack. Despite reporting better-than-expected results, the London-based retailer is grappling with the uncertainty caused by the cyber attack, which has led to a potential loss of £300 million in operating profit this year. The incident, which occurred around Easter, severely disrupted its online operations and food logistics, resulting in reduced availability, increased costs, and suspended orders. M&S's online Fashion, Home & Beauty division was particularly impacted, with disruption expected to continue throughout June and into July.

Key Takeaways:

• M&S reported a 22% increase in adjusted pretax profit to £875.5 million, the highest in over 15 years, and a 6% rise in revenue to £13.82 billion.
• The cyber attack is expected to reduce operating profit by around £300 million in the current financial year, with £100 million recoverable through insurance proceeds, cost-cutting, and other mitigation measures.
• The disruption will likely take some time to recover from, with online operations not expected to return to full power until later in the summer, which means the company cannot achieve full earnings potential for some time.
• Peel Hunt downgraded its rating to 'hold' and cut its target price to 360p, citing concerns that customers' long-term habits may be changed due to the cyber attack.
• JPMorgan estimates the gross impact of the cyber incident as guided by management at £300 million, offset by around £100 million of insurance, which would imply an impact to financial 2026 pretax profit in the region of 20%.
• Aarin Chiekrie at Hargreaves Lansdown thinks the "bigger picture" needs to be kept in mind, highlighting that the underlying business is performing well, and M&S is gaining market share and improving profitability.
• John Moore at RBC Brewin Dolphin is confident that the company will bounce back from the cyber attack, citing the company's remarkable turnaround story over the last few years and its strong sales and underlying business.

Statistics:

• Adjusted pretax profit rose 22% to £875.5 million from £716.4 million.
• Revenue rose 6.0% to £13.82 billion from £13.04 billion.
• Food sales were a standout performer, rising 8.7% to £9.0 billion and adjusted operating profit increasing 25% to £484.1 million.
• Fashion, Home & Beauty sales rose 3.5% to £4.24 billion, with operating profit increasing by 9% to £475.3 million.
• Statutory pretax profit declined by 24% to £511.8 million due to a £248.5 million non-cash impairment related to M&S's investment in the Ocado Retail Ltd joint venture with Ocado Group PLC.
• M&S raised its full-year dividend by 20% to 3.6p from 3.0p.

Sources:

• Marks & Spencer Group PLC
• AJ Bell
• PA
• Stuart Machin, Chief Executive of Marks & Spencer
• Dan Coatsworth, analyst at AJ Bell
• Peel Hunt
• Citi
• Aarin Chiekrie, analyst at Hargreaves Lansdown
• John Moore, analyst at RBC Brewin Dolphin
• JPMorgan
• Next PLC