Marks & Spencer suffers first loss in 94 years as Covid takes its toll
THE Covid crisis has driven Marks & Spencer into its first loss in 94 years as a publicly-listed company, with the retailer warning of more pain to come with the month-long lockdown in England that begins today.
The group made a pre-tax loss of £87.6 million during the six months to September 26, dragged down by the closure of its clothing outlets during the national lockdown in the spring. It also took a £92m one-off hit from a major reorganisation announced in August that led to 7,000 job cuts.
A spokesman for the company said that process has now been completed, but declined to break out the numbers on job losses in Scotland, where the group has 61 owned stores. All are currently open and trading in line with local health restrictions.
Clothing and homeware revenues slumped by 40.8 per cent in the first half of the financial year after non-essential shops throughout the UK were forced to close for three months from the end of March. That wiped more than £600m off sales, taking the clothing arm’s turnover down to £917m from £1.5 billion in the same period a year earlier.
Food sales fared better, up 2.7% on a like-for-like basis, as brisker trading in suburban stores offset weak performances from those in city centres and near transport hubs. The division producing an operating profit of £110m on total revenues of £2.8bn.
The food business also benefitted from last year’s tie-up with online grocer Ocado, which contributed £38.8m in profits before tax to Marks & Spencer.
John Moore, senior investment manager at Brewin Dolphin, said this was one of the encouraging signs within the figures.
“The success of the Ocado partnership is highly promising and appears to be unlocking the food business’s previously untapped online potential,” he said. “Debt reduction and improving cashflow also provide some comfort, although the former remains high for a business in transition.
“The bigger question in recent years has been over the performance of the clothing and home division – while the results are not as bad as expected, strategic action has been required for some time to prevent these businesses becoming a millstone around Marks & Spencer’s neck.”
Prior to the pandemic, Marks & Spencer was already attempting to re-invent itself as a more modern and
streamlined operation. Chief executive Steve Rowe announced in May that as a result of the Covid crisis, the company’s turnaround plan would be accelerated to deliver three years of planned changes in just 12 months.
Mr Rowe said yesterday that the company is now taking the right actions to “come through the crisis stronger and set up to win in the new world”.
“In a year when it has become impossible to forecast with any degree of accuracy, our performance has been much more robust than at first seemed possible,” he added
Despite the bullish tone, Marks & Spencer conceded that England’s new four-week lockdown will hit sales and profits in the run-up to the vital festive season. The company is now lobbying the UK government for store trading hours on Sundays to be extended in
December to help make up for lost trade.
Meanwhile, the near-term outlook remains “uncertain in relation to both Covid and Brexit”.
Preparations for the end of the Brexit transition period on December 31 are “well advanced”, but the group cautioned that if no free trade agreement is reached with the EU, there will be further costs for all food retailers in the UK that will “likely affect retail pricing”.
Preparations have included the creation of a single export centre in Motherwell to manage the supply of M&S Food products throughout
Ireland. This will be operated by logistics partner Gist, and builds on Marks & Spencer’s existing site in Cumbernauld, which supplies products to stores in Scotland.
Shares in Marks & Spencer closed 4.5p higher yesterday at 96.5p.