Marks and Spencer Group PLC (LSE:MKS) shares rose on Wednesday morning as the retailer hiked its dividend almost 17% and expressed confidence in growing profits this year, after reporting a sharp fall in annual profits due to last year's cyber incident.
The FTSE 100 grocery and clothing chain reported a stronger-than-expected fourth quarter, with clothing like-for-like sales up 4.3% and food sales rising 6.8% as the retailer finished the year with momentum.
Adjusted pre-tax profit came in at £671.4 million for the 52 weeks to 28 March, down 23.8% from a year earlier but beating the average City forecast of £665 million. Statutory pre-tax profit fell 28.8% to £364.6 million.
The cyber incident led to £131.3 million of related costs, while insurance proceeds of £100 million were recorded centrally within adjusted profit.
Food sales rose 7% during the year, with M&S saying customer numbers increased and market share improved. Adjusted operating profit in the division fell to £444.5 million from £491.8 million after higher markdown and waste costs in the first half.
Fashion, Home & Beauty sales fell 7.7% after the incident led to online trading and systems access being temporarily paused, disrupting stock flow and product availability. Adjusted operating profit in the division more than halved to £213.4 million from £478 million.
International sales fell 7.2%, partly due to shipment delays to the Middle East in the final month of the financial year.
M&S increased its full-year dividend by 16.7% to 4.2p per share as a strong balance sheet was maintained, with net funds excluding lease liabilities of £338.2 million.
For the new financial year, profit growth is expected to resume compared to the 2025 non-cyberattack financial year, helped by further progress in the transformation programme and investment in value, quality and digital capabilities.
The company is increasing capital expenditure to around £650 million-£750 million, as it accelerates investment in supply chain upgrades, technology and new stores. Around two-thirds of the spending will target growth in the food business.
Chief executive Stuart Machin said: “Retailers face a triple whammy of headwinds with increased taxation, a greater regulatory burden and ongoing global conflict.
At M&S we are unshaken by short-term events. We have a clear plan and there is much within our control as we reinvest in value and quality for our customers.”
The company said the outlook for the current year includes higher fuel, freight and input costs and tax levies and other "regulatory headwinds" for the sector, which are being mitigated through improved buying, reinvestment in price to drive sales volumes, and savings from the structural cost reduction programme.
Analysts at Peel Hunt said it was a "strong finish" to the year, with adjusted PBT ahead of the consensus forecast of £658 million, implying second-half growth in underlying PBT, despite the "cyber hangover".
Positives were noted, including that the Ocado Retail joint venture moved into a modest positive contribution, that M&S finished the year with net cash of £338 million and new large-format stores are performing ahead of plan.
Negatives were the vagueness of the profit outlook and no detail on recent trading.
Deutsche Bank also lamented no reference to consensus forecasts or current trading, while the rough guidance for "profit growth" compared to FY25's PBT of £880 million compares to a City consensus of around £960-970 million, "although the investor bar is likely lower than this".
This suggests FY27 expectations "may nudge down today".
** UPDATE: Adds share price and broker comments **