M&S upbeat despite drop in earnings

LONDON: British retailer Marks & Spencer Group Plc said improving profit margins and steady market share showed its struggling clothing business was on the mend, despite a 10% drop in annual earnings and sliding sales in the latest quarter.

The company said yesterday that within a “volatile and slightly depressed” clothing market, its turnaround plan was on track.

“We achieved a huge amount in the year and whilst there is still much to do, I am pleased with our progress,” said chief executive Steve Rowe, pointing to a stabilising market share in clothing, an increase in market share for full price clothes and the removal of excessive discounting.

“This is a self-help story in M&S,” he told reporters.

Rowe, a 27-year company veteran, became CEO a year ago, taking on the tough task of reviving a British institution that has fallen out of fashion over the last decade.

He has set out a plan to turn around M&S’s clothing business by driving improvements in the quality, fit and availability of its ranges, while lowering prices and reducing the number of garments sold through promotions.

Rowe is also working through major programmes to switch UK shopfloor space away from clothing and towards food and reduce the group’s international high street exposure, closing stores in 10 markets.

He said last year his plans would dent short-term profit.

M&S made a pre-tax profit before one off items of £613.8 million ($796 million) in the year to April 1 on revenue down 2.2% to £10.6 billion. That was ahead of analysts’ average forecast of £593 million but down from £690 million made in 2015-16. The outcome reflects lower clothing and homeware sales and higher costs.

After taking account of restructuring charges of £437.4 million pre-tax profit fell 63.5% to £176.4 million. The dividend was, however, maintained at 18.7 pence.

M&S’s fourth-quarter sales were hit by a later Easter falling outside the quarter and by the key days of the busy post Christmas sale coming in the third, rather than fourth, quarter.

Clothing and homeware like-for-like sales fell 5.9% in the fourth quarter, worse than analysts’ average forecast of a 3.3% decline. They had increased 2.3% in the previous quarter.

Rowe, however, said he was pleased with the outcome, noting calendar effects took 3.8% off the clothing and homeware number and that full price sales rose 8% in the quarter.

“By the time we hit the (scheduled) sale in July we’ll have had 91 full price days which is the longest run of full price days in 10 years. That’s substantial,” he said.

Fourth quarter like-for-like food sales fell 2.1% versus an analysts’ consensus of down 0.6%.

After the clothing and homeware gross margin rose 105 basis points in 2016-17, M&S forecast it in a range of up 25 to down 25 basis points in 2017-18, with the firm seeking to mitigate the impact of a weaker pound with better sourcing and a further reduction in discounting.

The food margin was forecast at flat to down 50 basis points, reflecting cost inflation.