BUSINESS LIVE: M&S profits soar 75%; Reach to cut 450 jobs; ITV suffers weaker studios demand

Mark Crouch, analyst at eToro:

‘After multiple false dawns over the years, Marks & Spencer’s turnaround looks like the real deal this time. This is a very strong update from the retailer, carrying on the momentum from its August trading update.

‘Unsurprisingly, M&S’s food section drove profits and revenue growth over the past three months, although the firm’s clothing and home, and international divisions also registered growth. The only disappointment – and a continuing one, at that – is the company’s joint venture with Ocado, which continues to be lossmaking.

‘While finances are still tight for many households, M&S’s focus on value and price reductions has shored up sales, which makes us confident that it can maintain its strong performance going into the all-important Christmas trading season.’

Borrowing costs fell sharply yesterday after a leading Bank of England official suggested interest rates could be cut in the middle of next year.

Amid signs of life in the housing market, the yield on two-year gilts dropped more than 0.1 percentage points to a five-month low of 4.6 per cent while the ten-year yield was down a similar amount to 4.22 per cent.

Fiona Orford-Williams, director of TMT at Edison Group:

‘ITV’s Q3 numbers this morning show a continuation of tough linear advertising conditions, as expected, but a slightly stronger showing from the Studios division and good progress at ITVX.

‘The sluggish overall backdrop, with Q4 advertising revenues set to be judged against tough comparatives which include last year’s FIFA World Cup, has prompted some shift in content spend into 2024. Q423 from Studios was set to be on the light side anyway, with delivery weighted earlier in the year, but it should still be able to reach the lower end of the target EBITA range of 13-15%.

’There is also softness in overall global content demand to contend with, from lower advertising revenues across the industry as well as the repercussions from the US writers’ and actors’ strikes. Over the medium-term, guidance for 5% organic revenue growth to 2026 for Studios remains in place. The group’s digital revenue target of £750m by 2026 also remains unchanged. The phasing across the earlier part of that timeframe is what remains in question.

‘The inclusion of the Media Bill in yesterday’s King’s Speech is important for ensuring prominence of the public service broadcasters’ offering on digital streaming platforms. ITV and STV will be keen to see this put into action as soon as possible.’

J D Wetherspoon sales improved in the first quarter of its financial year, helped by easing costs and steady demand for its lower-than-average priced drinks and food despite the cost-of-living crisis.

The group, which owns and operates 816 pubs across the UK and Ireland, said it would spend about £70million this year to improve its pubs.

Chairman Tim Martin said:

‘Sales in the first 14 weeks of the financial year have continued the pattern of gradual improvement which has followed the ending of lockdowns and restrictions. Inflationary pressures have eased, but energy costs, in particular, remain at far higher levels than pre-pandemic, putting pressure on suppliers and the wider economy.

‘The company is increasing investment in existing pubs in the current financial year to approximately £70 million (FY23: £46.9 million). Areas of investment include new staff rooms, changing rooms, glass racks above bars (to cater for increased usage of brewers’ “branded” glasses) and air conditioning.

‘The company currently expects an outcome for the financial year in line with market expectations, and will provide further updates as the year progresses.’

PwC will cut around 600 jobs in the UK as staff have been reluctant to leave on their own, according to a report.

The accounting giant confirmed that it planned to make ‘voluntary severance offers’ to some of its staff as attrition numbers were lower than usual.

PwC did not mention any job numbers, but the Financial Times reported that it is targeting around 500-600 cuts.

Aarin Chiekrie, equity analyst at Hargreaves Lansdown:

‘Good progress in Clothing and Home, where Marks & Spencer has struggled in recent years, has to be commended. It shows the extent to which the company has regained its style credentials and it is particularly admirable given the pressure on sales of discretionary items amid the cost-of-living crisis.

‘The M&S brand focuses on quality and value, and has succeeded in drawing shoppers in. But exiting the first half, unusually warm weather across September and October has naturally left investors apprehensive about the sales of winter clothing. They’ve weakened from their first-quarter highs but there’s still plenty of time for sales to recover, especially as the weather’s begun to turn heading into the festive Christmas frenzy.

M&S food was the standout performer in the first half, with demand here arguably more protected from high levels of inflation. At a more premium end of the market, M&S’ core customers aren’t as sensitive to price. Coupled with impressive margin growth, total underlying operating profits jumped significantly.

‘There’s also been good headway on the group’s reshape programme, which looks to pivot to new locations and refresh existing stores to create a more productive estate. Full-year guidance has been maintained, albeit performance is expected to be weighted towards the first half, with the group likely wanting to get through the Christmas period any potential move of the dial on expectations.

‘But the real talking point was the reintroduction of dividend payments, which should put a spring in investors’ steps. The yield is relatively low, but it marks a moment of significance for the group, and it’s a real statement of confidence around the outlook for the business from M&S’ management.

‘The group plans to hold a capital markets day this afternoon where investors will be hoping to hear more detail on its £400m cost-cutting programme, as well as updates on the levers being pulled to fuel further growth in market share and margins.’

Weaker demand from free-to-air broadcasters for ITV content will impact its studios business in the fourth quarter, the media group has warned.

ITV told shareholders it expects to see growth of around 3 per cent for the unit in 2023, down from its previous mid-single digit forecast.

ITV has been growing its studios business and ITVX streaming service to help smooth volatility in advertising demand.

It said the strategy delivered total revenue growth of 1 per cent for the first nine months to £2.98billion, despite a total ad revenue fall of 7 per cent over the period.

Owner of the Mirror newspaper Reach is set to slash 450 full-time jobs as part of a cost-cutting drive.

Reach said it expected to replicate its 2023 plan to achieve a 5 to 6 per cent reduction in annual operating costs, which ‘is on track to be delivered’, in the next financial year.

It told shareholders the move would ‘strengthen its position as a leading digital publisher and mitigate against the backdrop of continuing inflationary pressures’, while driving ‘better customer value’.

Jim Mullen, chief executive of Reach, said:

‘Our industry has a history of change and the future will undoubtedly involve yet more. That’s why it’s essential we set ourselves up to win, by making our operations suited to an increasingly fast-paced, competitive and customer-focused digital world.”

‘Hard work over the last few years means we have established ourselves as a leading digital publisher. But there’s more to do and today is about organising our business to deliver against that challenge.’

Marks & Spencer smashed profit forecasts in the first half with earnings before tax and nasties coming in more than 75 per cent higher at £360.2million, but the retail giant urged cation ahead amid the impact of high borrowing costs and a volatile geopolitical environment.

Analysts has expected the group to post a profit of £276million for the quarter, up from £205.5million made in the same period last year.

The 139-year old clothing and food group said its trading momentum had been maintained through October and it was planning for a good Christmas, with customers already responding positively to its ranges.

But it cautioned the economic outlook remained uncertain and flagged the impact on the consumer from the highest interest rates in 20 years, deflation, geopolitical events, and erratic weather.