Britain's M&S pulls out of Russia and warns on outlook

© Reuters. FILE PHOTO: A woman walks past a Marks & Spencer store at Oxford Street in London, Britain, July 20, 2020. REUTERS/Henry Nicholls/File Photo

By James Davey

LONDON (Reuters) -British retailer Marks & Spencer (OTC:MAKSY) will end its franchise agreement in Russia in the coming months and joined rivals in warning about the outlook for the current year amid a worsening cost-of-living crunch.

The 138-year-old clothing and food company ceased shipments in March to FiBA, its Turkish franchise partner in Russia, and said on Wednesday it would pull out of the relationship there, taking a charge of 31 million pounds ($39 million).

Several high profile western firms have announced plans to leave Russia since its invasion of Ukraine including McDonald's (NYSE:MCD), Starbucks (NASDAQ:SBUX) and Renault (EPA:RENA).

M&S had previously said it was unable to close its 48 Russian stores, which employ about 1,000 people, due to complex legal arrangements with its local partner.

Steve Rowe, who is stepping down as chief executive after six years in the top job, ending a 39-year career at M&S, told reporters there was no prospect of the retailer returning to Russia while President Vladimir Putin remained in power.

M&S reported adjusted pretax profit of 522.9 million pounds in the year to April 2 - in line with forecasts and up from just 41.6 million pounds in the pandemic hit 2020-21 year.

But for the current 2022-23 year, M&S cautioned it was starting from a lower profit base because it would not see a repeat of UK government business rates relief or any profit from Russia, and also expected only a minimal contribution to income from Ocado (LON:OCDO) Retail, its online delivery joint venture with Ocado, which has slashed its growth outlook.

"The business is now much better positioned and had an encouraging start to the year. However, given the increasing cost pressures and consumer uncertainty, we do not currently expect to progress from this lower profit base in 2022-23," M&S said.

Prior to the update, analysts were on average forecasting profit of 449.4 million pounds in 2022-23, according to Refinitiv data.

INCOME SQUEEZE

Last month, Tesco (OTC:TSCDY) and Sainsbury's both warned of lower profit this year.

Shares in M&S were up 0.3% at 0914 GMT, paring losses so far this year to 42.6%.

British consumers, facing the biggest squeeze on disposable income since at least the 1950s, were hit last month by a double whammy of surging household energy costs and higher taxes.

Data published last week showed overall inflation hit a 40-year high of 9.0% and the Bank of England thinks it will climb above 10% later this year.

Analysts say M&S's bias towards older, more affluent customers gives it some protection from the crisis, but are still concerned they will feel the pinch, with its food business at risk of shoppers trading down to cheaper rivals.

M&S said it expected the impact of declining real incomes to sharpen in the second half and endure for at least the remainder of the financial year. It expects the rate of cost growth to subside by the third quarter.

M&S said trading in the first six weeks of the new financial year had been ahead of the comparable periods in 2021-22.

Rowe will be succeeded by food boss and joint chief operating officer Stuart Machin.

($1 = 0.7974 pounds)