Profits plunge hits M&S in wake of restructuring
Marks & Spencer has reported a 63.5% plunge in annual pre-tax profits to £176.4m, with underlying earnings down 10.3% to £613.8m after sales in its clothing arm tumbled 5.9% in its final quarter.
M&S said the timing of its December sale also hit fourth-quarter trading which, when combined with the Easter impact, knocked around 3.8% off clothing and home sales and around 1.9% off food sales.
This left like-for-like sales in its food halls 2.1% lower in the quarter.
The profits plunge comes as chief executive Steve Rowe has invested heavily in slashing prices and overhauled its clothing ranges to win back customers.
Its bottom line results were also hit by the cost of its UK store closure programme, its move to pull out of 10 international markets and the decision to shut its defined benefit staff pension scheme to future accrual.
Mr Rowe said: “As we anticipated, the planned restructuring of M&S has come with a cost and has impacted profits. Looking ahead, we will continue our programme of selfhelp in a tough trading environment,” he added.
The group cautioned the outlook remains “uncertain” following a clothing market slump over the past year, but pledged to continue focusing on improving its clothing arm and keeping prices low despite cost pressures from the pound.
M&S said it plans to cut store space devoted to clothing and home products by around 1%-2% and revamp around 25% of its non-food shop space in the current financial year, while growing its Simply Food chain by around 90 new stores.
It wants to add around another 250 new Simply Food outlets by the end of the 2019-20 financial year.
But the group warned that the cost of its turnaround will continue to weigh on results, particularly in the first half of the new financial year.
The group’s disappointing fourth quarter left overall UK like-for-like sales 3.6% down in the year to April 17, with a fall of 3.4% across clothing and home and a more resilient 0.8% decline in the food business.
M&S insisted it was “encouraged by early evidence that our strategy is working”, with full-price sales up 2.7% with strong growth in the second half and total market share stabilising at the end of its financial year.
Mr Rowe has already warned profits would take time to recover as its clothing turnaround beds in, following moves to update its ranges and cut the number of promotions in favour of lower everyday prices.
M&S has recently poached the chief executive of Halfords, Jill McDonald, to lead the turnaround in its clothing business. She has been recruited into the new role of managing director for clothing, home and beauty, joining the retailer in the autumn of this year.
The group has also named wellrespected former Asda boss Archie Norman as its new chairman from September 1, to succeed Robert Swannell, who is retiring after six years in the role.
Speaking after the results, Mr Rowe said consumer spending on clothing was “extremely volatile at the moment and slightly depressed”.
This comes as the squeeze from the Brexit-hit pound takes its toll on household budgets, while high street chains have also been hit by a shift in spending towards leisure and eating out.
But Mr Rowe said the group’s “selfhelp” measures would help it ride out the tougher trading. It has stripped out eight online sales and three store promotions and plans to reduce in-store clearance events from six to four over the current year.
This means M&S has seen its longest run of full-price sales days for a decade, with full-price sales surging by around 11% in the second half of its financial year.
“We’ve got much more to do, but we’re on track,” said Mr Rowe.
Shares fell initially, but recovered to stand nearly 2% higher.