M&S's Profits Take a Hit After Cyber Hack: A Detailed Analysis
M&S, the renowned British retailer, faced a significant setback due to a cyber-attack that left its online store inaccessible for months. The impact was severe, causing a 99% drop in statutory profit before tax from £391.9 million to £3.4 million for the first half of the year. This figure highlights the financial strain the company endured during the attack.
The hack disrupted both online and in-store operations, leaving shelves bare in the weeks following the incident. M&S's CEO acknowledged the challenge, stating that the attack was an 'extraordinary moment in time.' Despite the setback, the company's CEO expressed optimism, predicting a recovery in profits during the crucial Christmas period. However, the recent Budget and Chancellor's speech failed to boost consumer confidence, adding to the challenges.
M&S received £100 million in insurance compensation, covering the initial costs of the attack. The company's financial statements revealed a £184 million profit for the first half of the year, a significant decline from the previous year's £413 million. The attack forced M&S to suspend online orders for nearly two months and click-and-collect services for almost four months.
Despite the initial losses, M&S's resilience is evident. The company's 'underlying strength' allowed it to recover, and it expects full-year profits to align with the previous year's figures. One analyst praised the company's performance, noting a 16% sales decline in the core business areas of homewares and fashion, which is considered impressive given the extended offline period.
The food sales saw a remarkable 7.8% increase, even during a challenging period, showcasing M&S's adaptability. Initially, M&S estimated the attack would cost around £300 million, and the CEO confirmed they are on track with that estimate. The costs included increased IT staffing and food wastage during manual processing.
Investors view the disruption as a temporary setback, allowing M&S to resume normal operations. The company forecasts a profit recovery in the second half of the year, with residual effects diminishing. M&S's CEO expressed confidence in a profitable Christmas, highlighting popular items like rose mulled wine and washable tuxedos.
Interestingly, while M&S's profits took a hit, other retailers benefited from the shift in consumer behavior post-attack. Next, for instance, saw a 10.5% sales increase in October, although it was lower than the exceptional performance seen immediately after the M&S cyber attack.
