The boss of Marks & Spencer warned the retailer will take a £60 million hit from higher employers’ National Insurance bills next year following changes announced last week in the Budget.
CEO Stuart Machin said that while the company had foreseen the hike in the rates - which went from from 13.8% to 15% - it had not anticipated the big reduction in the threshold, from £9,100 to £5,000 a year, coming into effect from next April.
The hike is expected to raise around £25 billion a year for the Chancellor to help close the black hold in the nation’s finances
Machin said he was also “disappointed” with the Chancellor’s failure to address business rates for retailers before 2026. The company pays around £170 million in business rates and £460 million in tax overall.
However, he insisted he was determined not to pass on the extra costs to consumer in the form of higher prices. He said: “We want to keep our strong value perception which is the best it’s been in a decade.
The comments came as the high street stalwart smashed City profit forecasts in the first half of the year as the turnaround of the high street food and clothing stalwart gathered pace.
The retailer said it made a pre-tax profit of £391.9 million in the six months to 28 September, up 20.4%, compared with a consensus forecast from analysts of £361 million.
The company said that food sales surged 8.1% with operating profits of £213.1 million and a margin of 5.1%.
Clothing and homeware sales were 4.7% higher with a 5.1% margin delivering profits of £213.1 million. Growth for both sides of the business was faster than forecast.
M&S said first half food growth had been driven by produce, meat and dairy while clothing sales were propelled by womenswear.
However the company warned on cost pressures with labour cost inflation running at 10% in the current year.
It said: “During the first half of the year, cost inflation has continued to be elevated, running well ahead of price inflation and the consumer environment has been uncertain. Despite this, the business has traded well growing volume and value market share.
“As we enter the second half, we expect this backdrop to persist. Nevertheless, in the first five weeks of the second half overall trading remains on track and we are confident of making further progress in the remainder of the year.”
Machin said: "Executing our strategy to 'Reshape M&S for Growth' has again delivered an increase in customers, sales value and volume, market share, profit and returns. Both food and clothing have now delivered market share growth for four consecutive years.
“Central to our strategy is our vision to be the most trusted retailer, with quality products at the heart of everything we do. This is not something we take lightly, and our relentlessness in delivering customers the best quality, innovation, service and value only available at M&S underpins our trading momentum.
“In food, we have been resolute in our commitment to trusted value. Over 1,000 products are being upgraded and 1,400 new lines are being launched across the year, putting us even further ahead of the pack on quality credentials, and value perception is the highest it's been in a decade. Progress on being a 'shopping list retailer' has driven growth in larger baskets.”
He added: “The recent Budget's long-term impact on M&S, our suppliers, and our customers is for now uncertain. Meanwhile, we are confident and we remain on track and focused on what is in our control. We have the best Christmas food range I've seen in my time at M&S and the most stylish seasonal clothing offer yet, and we know customers are looking forward to celebrating Christmas with M&S.”
The figures delighted the City where M&S shares surged 25p, or 6.5% to a nine year high of 409p.
Lucy Rumbold, equity research analyst at fund managers Quilter Cheviot said: “There is not much to dislike from Marks & Spencer’s results this morning as the business continues to execute its turnaround very well.
“The results were strong with the food division in particular delivering high sales growth – up 7.5% - and it continues to deliver good growth in its margins despite groceries being a high scale low margin game. For groceries M&S is currently in a sweet spot with consumer perception, where its customers do not have the spending constraints that are impacting the other supermarkets. With the run up to Christmas now in full effect, M&S has gathered momentum at just the right time.”
