Clothing retail will fall under the investor spotlight next week when Marks & Spencer (MKS) and Associated British Foods (ABF) report results, and bright spots are expected to be few and far between.

Shares in Marks & Spencer dropped sharply last month after it warned of cost pressures and unveiled plans to cut more stores. In a presentation to institutional investors (12 October), it said it would cut the number of full line stores by 67 by 2028 to take the total to 180. And in a plan to concentrate on food, it will open 104 Simply Food stores to take the number to 420.

Like all businesses, Marks & Spencer is juggling soaring costs just when UK consumers are having to reign in spending as cost-of-living pressures mount. At the same investors day, the company said it had seen wage inflation of around 7% and it expected more to come in 2023, while energy costs were £40 million higher than planned and without support, it faced possible headwinds of more than £100 million next year.

Food costs were already under pressure but the rampant dollar is also starting to tighten the screw on clothing, with more to come.

Marks & Spencer reports first-half results next week (9 November) and analysts anticipate earnings of 7.58p per share, 17% below pre-pandemic first-half earnings posted in November 2019.

Its shares have sunk 53% this year to 111.6p. If you exclude the six-month period during 2020, when Covid shutdowns were at their zenith, the stock is trading at close to multi-decade lows.

Marks & Spencer’s share price performance chimes with that of Associated British Foods’ (ABF) shares, which have fallen sharply to £13.77 and are near their lowest since 2013, following an autumn profits warning (8 September). The warning was largely sparked by margin pressure at Primark, which is having to absorb rising costs caused by surging energy prices and a strengthening US dollar.

The retailer has also decided not to push prices too far to help maintain its value credentials for its customers. In time, analysts believe that Primark should benefit as shoppers trade down from more expensive retailers, a shift that seems to have helped discount footwear retailer Shoe Zone (SHOE) to perform well this year.

People under significant financial pressure looking to buy shoes for their kids for school or for work may well turn to Shoe Zone. The company can achieve low prices due to the high volumes it orders direct from factories.

It confirmed robust profit margins and improved cash generation on 25 October, suggesting that its full year results to 1 October 2022 could be a rare bright spot for the retail sector.

Shoe Zone has been rewarded handsomely by investors with its shares up 54% year-to-date.

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