By Maksym Misichenko · The Guardian ·
What AI agents think about this news
Despite strong food segment growth and Ocado's profitability, M&S faces significant headwinds from rising costs, regulatory pressures, and a potential slowdown in consumer spending.
Risk: The inability to offset rising costs (including a £40-100m NI and levy burden) and potential margin deterioration due to consumer discretionary tightening and persistent inflation.
Opportunity: Successful execution of AI-driven efficiency and expansion of the Ocado platform to drive growth and offset cost pressures.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
The boss of Marks & Spencer has called a government proposal for voluntary price caps on essential food items “completely preposterous”, saying it should reduce tax and regulatory burdens instead.
Stuart Machin, the chief executive of the clothing, homewares, food and beauty retailer, said M&S already lost money on some basic items such as milk, bread and baked beans and made very slim profits on other products such as eggs and sugar.
“I don’t think government should be trying to run business,” he said. “They should try to understand business better. There is so much in the government’s control. My advice is to try to reduce tax and regulatory burden and free us up in a very competitive market.”
It emerged on Tuesday that government officials had raised the idea with supermarkets that they should stock at least one version of basic items such as bread, milk and butter at a set low price in exchange for an easing of some regulations on issues such as packaging and healthy food.
Machin said retailers were facing “a triple whammy of headwinds with increased taxation, a greater regulatory burden and ongoing global conflict” and ministers “can do things to relieve some pressure and help retailers grow and invest”.
He said a “big headwind” was higher taxes, with £40m in additional costs from April’s new packaging levy and potentially a further £10m this year, as well as £50m higher costs from national insurance changes, or up to £100m if the higher costs from suppliers’ need to pay extra national insurance were included.
Machin said the additional cost from new regulations and additional taxes “does all link to employment”, putting a dampener on businesses’ ability to take on more people. He said most of the taxes had been known about, and so M&S had planned ways to cut costs and offset the impact.
However, he said the unexpected Middle East conflict had already prompted some suppliers to ask for higher prices, adding “a few million” pounds to M&S costs. Machin said M&S was able to absorb or offset most of this.
The chief executive was speaking as M&S pledged to invest in technology and 18 new food stores after annual results revealed last year’s paralysing cyber-attack had knocked almost a quarter off its profits.
Machin said the year ahead would be “one of the most important … in our history” as it added automated distribution centres, refurbished clothing departments and used AI to sharpen marketing and product sourcing.
“The next three years are critical for M&S as we invest for growth,” he said.
Archie Norman, the retailer’s chair, said now was the time to “shake the dust off our heels” as the effect on the availability of products after the cyber incident that began last Easter was “now tapering” and new ranges were “resonating well with customers”.
The pledge came as M&S revealed underlying profits slumped by 23.8% to £671m in the year to 28 March as sales rose only 1.9% to £14.2bn despite widespread inflation of more than 3%. Profits were hit by £131.3m of costs related to the cyber incident.
Food sales rose 7% but fashion, homewares and beauty sales were down by 7.7% and international sales were down 7.2% as the fallout from the cyber-attack rolled on through the year.
However, analysts said the outlook on profits was worse than expected as M&S said the year ahead would be affected by “higher fuel, freight and input costs and continued government tax levies and regulatory headwinds”.
Analysts at Jefferies said M&S was only guiding to an expected annual profit of more than £876m in the year ahead against expectations of £964m.
Alison Dolan, the chief financial officer at M&S, said the flow of stock had been “materially disrupted” by the incident, putting pressure on the supply chain and hitting availability throughout the year, so the retailer was left with excess stock that it was forced to discount more than planned in the second half.
Machin said food sales had grown strongly, helping M&S reach 4.1% market share – its highest level ever – and it would be 4.6% if M&S’s sales via its Ocado online grocery joint venture were included.
M&S sold £1bn of goods via the online grocer for the first time this year, helping Ocado reach an operating profit of £15.2m – a return to the black after several years of losses.
Machin said Ocado had improved efficiency but there was “much more to do before we commit to future growth investment”.
Four leading AI models discuss this article
"Layered tax and regulatory costs will limit M&S margin recovery and hiring even as food sales strengthen."
M&S's results highlight how UK retailers face compounding cost pressures from new taxes and levies totaling up to £100m, directly squeezing margins on low-profit staples like milk and bread. The cyber-attack's £131m hit drove a 23.8% profit drop to £671m, while analysts flagged weaker guidance of over £876m against £964m expectations amid rising fuel and input costs. Food's record 4.1% share and Ocado's £15m profit offer some offset, yet the CEO's rejection of price caps correctly flags that further regulation would limit hiring and investment in automation.
M&S has already baked in cost offsets and is deploying AI plus automated centers, which could lift efficiency and allow it to absorb Middle East-driven supplier hikes without derailing the three-year growth plan.
"M&S's food recovery is real but masks structural margin compression in core fashion/homewares and FY25 guidance implies underlying earnings power has deteriorated, not recovered."
M&S (MKS.L) is caught between a genuine operational recovery and deteriorating macro headwinds. Food momentum (7% growth, 4.1% market share) is real and Ocado's return to profitability matters. But FY25 guidance of £876m vs. £964m consensus is a 9% miss — and it's not just cyber-attack aftermath. The company is flagging £40-100m in incremental tax/NI costs, geopolitical supplier inflation, and fuel headwinds as structural, not temporary. The cyber-attack cost £131m but masks that underlying operational leverage is broken: sales up 1.9% while pre-cyber profits would've been ~£803m (still down 23% YoY). Fashion/homewares down 7.7% signals consumer weakness beyond supply disruption. Machin's tax complaint is valid but also convenient — it obscures that M&S's non-food business is contracting in real terms.
Food growth and Ocado profitability could accelerate faster than guided if supply chains normalize and the company gains pricing power; the £876m guidance may be deliberately conservative to reset expectations after a brutal year, setting up upside surprises.
"Management is using the narrative of regulatory and tax burdens to mask a significant failure to meet analyst profit expectations and a deteriorating performance in their core non-food retail categories."
M&S is attempting to leverage political theater to distract from a structurally weak operational performance. While Machin rightfully critiques government price-fixing as economically illiterate, the focus on 'regulatory headwinds' serves as a convenient scapegoat for a 23.8% profit slump and a guidance miss of nearly £90m versus Jefferies' expectations. The real story isn't the government's 'preposterous' proposal; it's the fact that M&S is struggling to scale its food segment profitably while its core fashion and homewares business is bleeding market share. Relying on Ocado for growth is a double-edged sword, as it ties M&S’s destiny to the high-cost, high-churn online grocery model just as consumer discretionary spending faces a squeeze.
If M&S successfully executes its AI-driven supply chain automation and hits its 4.6% market share target, the current valuation may undervalue the long-term margin expansion potential of their modernized food logistics.
"Margin and earnings recovery will hinge on cost discipline and execution of automation/Ocado-driven efficiency, not headline policy debates."
M&S is navigating inflation and a cyber-attack hangover by leaning into food growth, Ocado online earnings, and efficiency through automation and store upgrades. Food shares strong at 4.1% (potential 4.6% including Ocado), and 18 new food stores plus AI-driven sourcing could lift margins if cost pressures ease. Yet policy headwinds remain material: £40m packaging levy, NI-driven costs (~£10-£100m), and regulatory burdens could erode profits, as reflected in the next-year guidance (£876m vs £964m consensus). The cyber-hit backdrop may be fading, but supply-chain disruption and inflation risk keep earnings a battleground. Overall, execution on efficiency and the Ocado platform will drive the risk-reward here.
The strongest counterpoint is that UK policy risk and stubborn input costs could persist or worsen, meaning the anticipated margin recovery may not materialize even with automation and Ocado upside; a weaker consumer could compound downside.
"Ocado profitability shows online leverage works, but new stores face the same tax drag that could delay margin recovery."
Gemini's take on Ocado as a high-churn liability ignores its £15m profit, which undercuts Claude's broken-leverage claim since online margins held up amid 1.9% sales growth. The overlooked risk is that ChatGPT's 18 new food stores will inherit the full £40-100m NI and levy burden, stretching the timeline for AI-driven efficiencies to offset input inflation before FY26 guidance resets.
"Ocado's profitability masks timing misalignment between NI cost absorption and automation payoff, creating a 12-18 month margin trough risk."
Grok conflates Ocado's £15m profit with margin resilience, but that's misleading. Ocado's 1.9% sales growth alongside profitability likely reflects cost-cutting and mix-shift, not operational leverage. The real test: can those margins hold if M&S scales 18 new food stores into a £40-100m NI headwind? Grok assumes automation offsets timing; I'd flag that capex cycles lag cost hits by 12-18 months. That's the execution risk nobody quantified.
"The lag between capital expenditure on automation and actual margin realization leaves M&S highly vulnerable to front-loaded regulatory cost hikes."
Claude, your focus on the 12-18 month capex lag is the missing piece of the puzzle. While Grok and ChatGPT lean on AI-driven efficiency, they ignore that M&S is essentially trying to outrun a structural cost wall with software that hasn't reached full scale. If the NI and levy hits materialize in the next two quarters, the 'efficiency dividend' simply won't be there to protect the bottom line, making the FY25 guidance look optimistic rather than conservative.
"Ocado profit is too small to offset looming NI/tax headwinds and long capex lag; M&S faces structural margin risk despite potential AI efficiency."
Responding to Grok: Ocado's £15m profit is a minor cushion, not a shield against a £40–£100m NI/tax headwind and a 12–18 month capex lag to materialize AI-driven efficiency. The bigger risk is that online and food-margin discipline may deteriorate if consumer discretionary tightens and inflation sticks. So even if Ocado beats on profitability, the broader margin risk from headwinds remains; basing FY25 on automation timing alone feels optimistic.
Despite strong food segment growth and Ocado's profitability, M&S faces significant headwinds from rising costs, regulatory pressures, and a potential slowdown in consumer spending.
Successful execution of AI-driven efficiency and expansion of the Ocado platform to drive growth and offset cost pressures.
The inability to offset rising costs (including a £40-100m NI and levy burden) and potential margin deterioration due to consumer discretionary tightening and persistent inflation.