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Marks & Spencer Sees Profits Fall as it Restructures

Marks & Spencer has reported a tough year, as it struggled to reverse falling clothing sales and was hit by restructuring costs as part of efforts to simplify its business. For the 52 weeks to 1 April, pre-tax profits fell 63.9% against the 53-week prior year period to GBP176.4mn (EUR215.26mn). Even excluding restructuring costs, profits decreased by more than 10%.  Meanwhile new food store openings under its Simply Food banner helped group revenues to edge up 0.6% to GBP10.6bn (EUR12.94bn).

The clothing and home division put in another weak performance, with like-for-like sales falling 3.4% during the year and by 5.9% during its fourth quarter. Earlier this month M&S drafted in Halfords CEO Jill McDonald to a new role heading up the division. Meanwhile food revenue grew by 4.2% driven by new store additions, although like-for-like sales were down 0.8%. Online sales at M& increased by just 4.9%.

Chief Executive Steve Rowe acknowledged a tough year and difficult trading environment but said that the company remained “on track” with improvements to its clothing division, which he said was beginning to stabilise market share and remove excessive discounting. The company is currently in the process of exiting several international markets where it owned stores, although continuing to build its international franchise operations.


Shifting Focus

Marks & Spencer is on a journey of restructuring and reinvention and it faces difficult headwinds in the highly competitive and somewhat unpredictable UK retail environment. The company is in the process of shifting its focus to invest more heavily in its food division and this makes perfect sense. With a strong reputation for quality and innovation, food consistently outperforms the rest of its business. The company's repositioning of its UK store base will give more space to food and the retailer is also growing its chain of Simply Food stores, with around 250 additional stores expected to open by 2019/20. An online grocery trial scheduled for this autumn also signals that M&S is seeking to tap into faster growing channels for growth and this could prove popular, if the retailer (known for Food to Go and top up shopping) can find a way to make it profitable.

However, on the flip side, the retailer’s fortunes are heavily reliant on its clothing division, which has struggled for several years to provide the right assortment for customers in a strongly competitive market. Increased competition from newer online players (Asos, Amazon) has not helped, as well as being outperformed by traditional department store and high street rivals. The company is taking steps to prioritise this department and says it now has a “clear view” of what its customers expect, has lessened its reliance on “excessive discounting” and will refresh around 25% of Clothing & Home space over the next five years. Jill McDonald’s appointment to lead the department is a step towards this goal, although there is a lot of catching up to do and her fashion credentials are to date untested.

Meanwhile as the company restructures to close underperforming stores and exit ten international markets, it will rely even more heavily on its UK strategy to win, despite the “tough trading environment”. 

Topics: Marks & Spencer