Temporary profits cheer for M&S as cuts continue

CEO signals more pain for M&S store network as he looks to modernise appeal

Marks & Spencer warned of a bleak outlook for sales growth yesterday despite surprising the market with higher than expected profits.

Revenues dropped by 3.1% to £4.96 billion in the half year to September 29, reflecting declining sales in both its food and clothing and home divisions.

M&S said it does not expect much improvement in sales in the near future, as it deals with “the growth of online competition and the march of the discounters.”

The company has already announced plans to close around 100 stores in the UK as well as exiting some international markets, but warned that “significant further change” is required.

Chief executive Steve Rowe said: “We should have been doing what retailers do all the time.

“We need a constant churn to ensure we’ve got the right stores in the right places for our customers.

“I’m not going to stop at 100 and say job done.”

Clothing and home revenue fell by 2.7% as a result of the strategy to close underperforming stores and reduce the amount of in-store space dedicated to non-food items. Like-for-like sales declined by 1.1%. Food revenue dipped by 0.2% overall, but like-for-like sales slipped by 2.9%.

However, underlying pre-tax profits rose 2% to £223.5 million – compared with £219.1m a year earlier – beating forecasts of a decline to £203m.

M&S said the improved profit was due to the phasing of costs, but full-year cost guidance remains the same.

Mr Rowe said the retailer was “leaving no stone unturned” in its radical transformation plan, adding: “We are on track to restructure our store portfolio with over 100 full-line closures and expect to see newly remodelled stores open next year,” he said.

“We are fixing the basics of our online channel and there are very early signs of improvement.”

Capital expenditure is now expected to be between £300m and £350m before disposals, lower than a previous estimate of up to £400m.

Tom Stevenson, investment director at Fidelity Personal Investing’s share dealing service, said the results were like a “cold shower”.

“The company is ruthlessly honest about the massive challenge it faces,” he said.

“It is reinventing itself on no less than nine different fronts, acknowledging that it has a mountain to climb in both clothing and food, that its management has been weak, its website clunky and its stores old-fashioned.”

M&S is rationalising its store portfolio. This store in Falkirk closed earlier this year.