(Bloomberg) -- Marks & Spencer Group Plc said it will do “all it can” to avoid passing on higher costs to customers as it faces an extra £120 million ($155 million) wage and tax bill in the UK.
Chief Executive Officer Stuart Machin pledged to absorb a sharp rise in national insurance contributions — a major payroll tax — by limiting costs.
“We’re definitely not planning to increase prices,” he said during a call with journalists. “We want to maintain where we are.”
Machin added that he “can’t rule anything out” when mitigating costs. The company said, in a separate statement to Bloomberg, there are no plans to reduce headcount.
Machin spoke after M&S posted a more than 17% jump in first-half profit before tax and adjusted items to £408 million. The result beat estimates of £360 million, according to a Bloomberg survey of analysts, and pushed shares as much as 7.4% higher.
The clothing and homewares chain’s share price has more than tripled in the last two years thanks to a turnaround plan that has succeeded in tough economic conditions, including a generational inflationary crisis.
Retailers’ margins will come under further pressure, however, after Chancellor of the Exchequer Rachel Reeves lifted taxes by more than £40 billion in last week’s budget. Machin said that while the increase in the rate of NI contributions was expected, a cut in the threshold at which businesses start to pay the tax was a “double whammy” that he hadn’t seen coming.
The lower threshold will impact retailers and hospitality businesses that employ a lot of part-time staff.
Wage costs
Machin said the new tax rates would add around £60 million to M&S’s tax bill, while the higher minimum wage will have roughly the same effect. However, he said higher wages were “really a good cost” and the business was keen to reward its staff. Some retailers have found that higher wages have improved consumer confidence and driven up sales.
“The recent budget’s long-term impact on M&S, our suppliers, and our customers is for now uncertain,” Machin said in a statement alongside the results. Cost inflation has stayed elevated during the first half, M&S added.
Separately on Wednesday, JD Wetherspoon Plc — the affordable pub chain — said its annual costs are expected to rise by about £60 million in 2025 driven mostly by a 67% increase in NI contributions.
Wetherspoon Chairman Tim Martin said the chain is still confident of a reasonable year ahead but warned that “forecasting is more difficult given the extent of the increased costs.”
That reflects a “material wage increase,” James Wheatcroft, an analyst at Jefferies, who added that he expected Wetherspoon and the rest of the sector to push up prices to mitigate rising costs.
Clothing
M&S, popular with Britain’s middle classes, struggled for years under previous CEOs but is turning around its fortunes since Machin took over in May 2022.
Its latest results point to tentative signs of a reversal in weak fashion spending, after several British retailers blamed unseasonable weather for poor spring and summer sales.
Clothing and home sales were up 4.7% in the 26 weeks to Sept. 28, continuing M&S’s recovery in an area that used to hold it back. M&S said womenswear benefited from the “strongest value perception in over a decade,” driving growth in the division. Machin has tried to broaden the appeal of its clothing to younger shoppers.
Next Plc last week raised its profit guidance for the third time this fiscal year, citing strong sales on growing consumer confidence.
(Updates with company comment on job cuts, further details.)
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