Marks & Spencer has said it is prepared for the “gathering” economic storm which it believes will force yet more retailers out of business despite reporting a 24 per cent plunge in profits during the six months to October 1.

Sales across the clothing, food and homeware group rose by 8.8% to £5.6 billion but rising costs knocked pre-tax profits back to £205.5 million. Sales are holding up so far in the second half, though M&S said conditions are set to become more challenging as it expects a “material contraction” in customer demand next year.

“The combined impacts of the cost-of-living squeeze and the most marked rise in the cost of doing business for many years are creating pressure on margins industry-wide,” the company said.

“All parts of the retail sector will be affected, and this will result in unviable capacity leaving the industry, creating opportunities for the leaner players who remain. We believe that the M&S positioning and the accelerated change underway, give scope for greater resilience and we are very confident the business will emerge with a strengthened market position and prospects for growth.”

HeraldScotland: Stuart Machin, chief executive of Marks & SpencerStuart Machin, chief executive of Marks & Spencer (Image: M&S)

The warning overshadowed news that M&S increased its take of the UK market for clothing and homeware sales for the first time since 2012, with the group’s shares marked lower in yesterday’s trading.

It also underlines the continuing struggles for the sector at large, which suffered thousands of shop closures during the pandemic as major chains such as Top Shop, Monsoon, Oasis, Debenhams and M&Co collapsed into administration.

Given the wider uncertainties, M&S said it will delay a decision on whether to resume dividend payments to shareholders: “Given the macro outlook the board will defer consideration of capital allocation policy and options for reinstating capital returns to shareholders until nearer the year end.”

READ MORE: Marks and Spencer closures will see a quarter of biggest stores close down amid new plans

Clothing and homeware profits jumped by more than a third in the first six months of the financial year as shoppers returned to stores after last year’s lockdown restrictions. Sales of dresses soared by 50% and men’s suits by more than half as socialising, in-person events and office work resumed.

The group has already put its clothing prices up by about 7% and said it will likely raise prices again after the fall in the value of the pound against the dollar trigger by September’s disastrous “mini-Budget”. M&S pays its overseas clothing suppliers in dollars, which increases its costs when sterling depreciates.

Profits in the food business slumped by 42% as M&S held off on passing through the full effect of an 11% increase in the cost of supplies to its customers. There was also an increase in food waste as buying patterns shifted during the summer, though this has now “normalised”.

Its online joint venture with Ocado Group made a loss of £700,000 in the first half as delivery volumes declined from their pandemic peak while utility and fuel costs increased. The online grocer will be relaunching its website and working more closely with M&S in an effort to revive sales.

READ MORE: Shoppers cut back on food as retail sales fall

"Looking beyond the current stormy weather, much is in our control and our mandate is clear - to step up the pace, accelerate change, drive a simpler, leaner business and invest in growth opportunities to build a reshaped M&S,” chief executive Stuart Machin said.

Consumer sector analyst Orwa Mohamad at research group Third Bridge said the Christmas trading period will be “crucial” for M&S.

"The biggest challenge for M&S is shifting its image from an occasion shop to a weekly shop,” he said. "There is a risk that large numbers of infrequent shoppers simply drop the brand from their repertoire as they trim back their discretionary spend."

Shares in M&S closed yesterday’s trading 3.95p lower at 113.1p.