Marks & Spencer expects £300m impact from cyber attack as recovery continues

Marks & Spencer (MKS) projects a £300 million hit to operating profit in the current financial year due to a recent cyber attack, despite reporting a 22% increase in adjusted profit before tax to £875.5 million for the year ended March 29, with sales up 6.1% to £13.9 billion; the attack primarily impacted food availability and online Fashion, Home & Beauty sales, though stores remained resilient, and the company anticipates continued online disruption into July.

Analysis

Marks & Spencer (MKS) confronts a material headwind in its new financial year, forecasting a £300 million impact on operating profit stemming from a significant cyber attack. This incident has notably disrupted food availability, leading to increased waste and logistics costs, and severely impacted online sales and profits for its Fashion, Home & Beauty division, with online disruptions anticipated to extend into July. This operational setback overshadows a strong prior year performance, where MKS reported a 22% increase in adjusted profit before tax to £875.5 million, its highest in 15 years, driven by a 6.1% rise in sales to £13.9 billion. Both Food (sales +8.7%, adjusted operating profit £484.1m, margin up to 5.4%) and Fashion, Home & Beauty (sales +3.5%, profit £475.3m, margin up to 11.2%) demonstrated robust underlying growth. However, statutory profit before tax declined by 24% to £511.8 million, primarily due to a £248.5 million non-cash impairment related to its Ocado Retail joint venture. Despite the cyber attack, MKS increased its full-year dividend by 20% to 3.60p per share, reflecting £443.3 million in free cash flow and management's assertion that its long-term strategy remains unchanged, with plans to accelerate transformation efforts.

Key Decisions for Investors

• Investors should brace for near-term earnings volatility and potential share price weakness given the substantial £300 million estimated profit impact from the cyber attack and ongoing operational remediation.
• Monitor closely MKS's progress in restoring systems, the effectiveness of its cost control and insurance mitigations against the cyber attack's financial toll, and any revisions to the impact estimate.
• Evaluate the resilience demonstrated by the prior year's record adjusted profits and dividend growth against the current disruption, considering if the long-term recovery narrative remains intact post-incident resolution.