Full brunt of M&S cyber-attack becomes clear

These half-year numbers represent the full brunt of the cyber-attack, which has inevitably dented profits but at the same time has allowed Marks & Spencer Group (LSE:MKS) to draw something of a line under the incident.

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The online outage has left a mark on the group’s reputation as well as inflicting some material damage. Adjusting items of £167.8 million for the 26 weeks ended 27 September 2025 included £101.6 million related solely to the attack, although M&S was able to recoup £100 million in its insurance claim. As IT systems become increasingly complex and interconnected, the risk of malicious assaults increases with a number of entry points, such as links with suppliers and other third parties. However, the group (and indeed investors) are hopeful that the new version of its security will be a far higher mountain to climb for malicious hackers.

Adjusted pre-tax profit for the six months of £184.1 million was 55% lower than the corresponding period as a result of what M&S cautiously describes as a “one-off” impact, although the number was higher than the £104 million which had been expected. Sales were notably boosted by the inclusion of Ocado Retail in the numbers, rising by 22% to £7.965 billion, which accounts for most of the outperformance of an estimated £6.5 billion.

Despite the disruption, the Food business continues to be the group’s main engine of growth, accounting for 57% of the group total by revenue. In the period, sales were ahead by 7.8% with adjusted operating profit of £89.1 million, although margin slipped from 5.1% to 2% given the markdown, wastage and loss which resulted from manual rather than automated allocation of stock.

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However, prospects remain bright for the unit, which is a clear focus of the group’s push for growth in terms of new stores and general investment. Indeed, quite apart from the enduring appeal of its specialist food ranges, the nature of these revamped stores has led to a noticeable increase in customers choosing M&S for their full shop, while the impending festive season is one where M&S traditionally prevails.

Fashion, Home & Beauty, which is responsible for 21% of group sales, was the most affected by the outage. Sales declined by 16.4% overall, including declines of 3.4% in store due to the lack of the Click & Collect option and of course online, which fell by 42.9% given the length of the extended lack of trading possible. Adjusted operating profit of £46.1 million was 81% lower than the previous year and stopped most of the unit’s recent progress in its tracks.

Even so, the unit is now heading back towards its previous trajectory, whereby its offering was clearly appealing to the new target market of the “modern mainstream customer” as the company attempts to throw off the shackles of a previously dowdy and tired image. M&S continues to relay that style perception is on an upward path, including but not limited to both women’s and men’s categories.

Ocado Retail remains a work in progress with increasing signs of improvement. Revenues grew by 14.9% in the period to £1.5 billion, while the operating loss of £3.1 million was lower than the £12.5 million reported in the corresponding period. Further investment and efficiencies continue apace, to the extent that the joint venture could be near to a positive inflection point, even though reaching this stage has taken longer than had been initially hoped.

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The group’s healthy financial position helped it to weather the storm, and indeed M&S continued to make investments in the business despite the cyber-related costs elsewhere. An increase to the dividend takes the projected yield to 1%, which is more a statement of confidence rather than an attraction for investors. Net funds improved for the period, with perfectly manageable levels of net debt still in place and the cost reduction target was increased to £600 million from the previous £500 million.

The incident not only distorted the overall numbers, but also inevitably weighed on the share price. Despite a recent bounce of 12% over the last three months, the shares have been limited to a gain of just 1% over the last year, which compares to a spike of 19% for the wider FTSE 100.

Viewed through a longer-term prism, however, the direction of travel remains clear. The shares have gained 240% over the last three years and the group expects to be back on track by the end of the financial year, leading to an estimated second half performance at least in line with last year as the units most affected by the cyber incident regain full momentum. As such, the market consensus of the shares as a buy reflects confidence that M&S can now resume its quest in search of former glories.