M&S says annual profits tumble on restructuring

23 May, 2018, 18:28 | Author: Essie Rivera
  • Marks & Spencer share price rallies even as retailer’s profits tumble

"A sharp jump in Marks & Spencer's shares this morning means that the retailer got its news management right, by releasing the details of big store closures ahead of its results, but the numbers themselves are nothing to be proud of and show just how much work there is still to be done", said Russ Mould, investment director at AJ Bell.

After taking account of special items of 514.1 million pounds, including the charge relating to store closures, pretax profit was 66.8 million pounds, a 62 percent fall.

The full-year results are slightly better than the City had feared but continue the longterm decline in profits that M&S has experienced from a decade ago, when it reported profits of £1 billion.

M&S shares - down 7% in the year to date and the biggest fallers on the FTSE 100 on Tuesday - rose 6% in early trading on hopes the worst is behind the 134-year-old retailer. "Accelerated change is the only option".

Chief executive Steve Rowe said the charge was linked to M&S' overhaul plan, which was focused on "restoring the basics" and transforming the firm's culture towards a "a faster, lower cost, more commercial, more digital business".

Clothing & Home revenue fell 1.4 percent to 3,741.1 million pounds for the 52 weeks to March 31, 2018, with like-for-like revenue down 1.9 percent. In addition, the group is set to close 25 percent of its Clothing & Home space to as sales shift online and investing to increase and improve its commerce capacity to support its aim to double its online sales to more than 33 percent. It has also scaled back the number of Simply Food stores it planned to open this year by 15.

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In support of these changes, M&S expects capital expenditure of £350-400mln in 2019 but sees United Kingdom costs falling by up to 1% due to cost efficiencies and lower depreciation.

The closures will affect its clothing and home stores, which have under-performed for several years.

Commenting on the results Laith Khalaf, senior analyst at Hargreaves Lansdown (Frankfurt: DMB.F - news), said M&S investors were essentially being asked to take a "leap of faith".

"This is vital as we start to leverage the strength of the M&S brand and values across a family of businesses to deliver sustainable, profitable growth in three to five years".

Liberum maintained a "sell" rating on the stock, saying the full year results "leave us unable to see any evidence yet of progress on the transformation strategy".

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