Marks & Spencer confronts significant financial challenges due to forthcoming national insurance and wage cost increases.
- M&S anticipates an increase of £60 million in its tax bill following changes in national insurance contributions.
- The company also expects labor costs to rise by another £60 million due to minimum wage increases.
- Despite potential financial strain, M&S reports strong profit growth, boosting its shares significantly.
- Chief executive Stuart Machin assures efforts to cut costs without raising prices for customers.
Marks & Spencer, a staple of the UK retail industry, is currently grappling with impending financial challenges stemming from changes in national insurance contributions and rising wage costs. The company’s chief executive, Stuart Machin, has detailed plans to manage these pressures without compromising customer affordability.
The Chancellor’s recent decision has led to a 1.2 percentage point increase in employer national insurance contributions, raising them to 15% from the next April. This shift is expected to add an extra £60 million to M&S’s tax obligations, with their total tax bill anticipated to climb to approximately £520 million. Machin acknowledged the foresight in planning for these changes but expressed surprise at the extent of the financial ‘double whammy.’
In addition to the expected rise in national insurance costs, M&S faces the impact of increased labor expenses due to minimum wage adjustments. The retailer anticipates a £60 million surge in labor costs, a figure they had considered in their financial planning. Despite these hurdles, Machin reaffirmed the company’s track record of implementing cost-saving measures and emphasized efforts to alleviate these financial burdens without resorting to price hikes.
This cautious approach comes amid widespread concern among retailers about an ‘avalanche of costs’ in the aftermath of recent budget changes. Analysts predict that these adjustments could add between £550 million and £600 million to the overall operating costs of UK grocery markets. Other retailers, like the owner of Primark, are reportedly exploring options such as self-checkouts to mitigate rising expenses.
Despite these challenges, the financial health of M&S appears robust. The company recently reported a 17% increase in profit before tax and adjustments, amounting to £408 million for the six months ending September 30. This performance has exceeded market expectations and contributed to a surge in M&S shares, which reached their highest level since 2016, with a 7.4% increase witnessed recently.
Machin remains optimistic about the future, particularly with the upcoming holiday season. Citing M&S’s own research, he highlighted that customers are planning to spend more during the Christmas period compared to the previous year. This optimism is further bolstered by the positive growth observed in both the company’s food and clothing sectors over the last six months.
Marks & Spencer remains committed to managing rising costs while maintaining customer affordability, demonstrating resilience despite financial challenges.
