M&S profits plunge after costly cyber attack

Marks and Spencer’s profits have more than halved after it took a hit from a major cyber attack earlier this year that saw online home and fashion sales plunge more than 40% when it was forced to halt website orders.

The retail giant reported its underlying pre-tax profits tumbled 55.4% to £184.1 million in the six months to September 27.

On a reported basis, profits were almost wiped out, plunging to £3.4 million from £391.9 million a year ago.

M&S said the cost of the attack is set to total around £136 million, including about another £34 million in the final six months of its financial year, but it was able to recover £100 million in its first half through an insurance payout for the hack.

The total impact is lower than than the £300 million cost estimate given by M&S in May.

The group said sales in its fashion arm dropped by 16.4% as the cyber attack wrought havoc, with sales online down 42.9% and 3.4% lower across its stores.

The high street stalwart stopped all online sales for around six weeks and suffered empty shelves due to disruption to its logistics systems after hackers targeted the business around the Easter weekend.

Customer personal data – which could have included names, email addresses, postal addresses and dates of birth – was also taken by hackers.

Stuart Machin, chief executive of M&S, said: “The first half of this year was an extraordinary moment in time for M&S.

“However, the underlying strength of our business and robust financial foundations gave us the resilience to face into the challenge and deal with it.

“We are now getting back on track.”

He said the group also faced cost increases of more than £50 million from the national insurance hike in April over its first half, but that he expects profits to be “at least in line with last year” in the final six months of its financial year as it ramps up its cost-cutting target to £600 million.

“The retail sector is facing significant headwinds… but there is much within our control and accelerating our cost-reduction programme will help to mitigate this,” he added.

In May, Mr Machin said the attack, which was caused by “human error”, was expected to cost the company around £300 million, before insurance claims or cost reductions to offset the impact.

M&S reported a surge in activity after its clothing, home and beauty sales returned online but some competitors such as Next saw market share grow during the period of disruption, suggesting some online shoppers went elsewhere.

M&S resumed home delivery in June after the hack, but did not restart click and collect orders until August.

It said online sales have been improving and the group expects overall trading to be fully recovered by the end of its financial year.

“In fashion, home and beauty, the recovery curve has been slower than food, but we are making progress every day,” Mr Machin said.

Food sales lifted 7.8% in its first half and were 2.8% higher by volume and with the impact of price increases stripped out.