A LONG-awaited turnaround at Marks & Spencer could finally be on the cards even though it crashed to a £201 million loss and said dozens of stores will permanently close.
The once iconic retailer, now more a symbol of the decline of the high street, put a brave face on an awful year and gained some support from the City for the strategy of chief executive Steve Rowe.
Sales for the year to April fell by £1 billion to £9.1 billion, as the impact of lockdown was laid bare.
But M&S’s troubles pre-date the pandemic, and investors took heart that the company has moved to adjust an outdated store estate.
The food arm – the future, many believe – saw sales up nearly 7%, while clothing and home sales fell 31%.
Many stores will be closed and in the future some will be food only. "In around 30 locations which can no longer support a store we will close, recapturing trade in nearby stores or online," the company said.
Another 70 shops will be restructured, taking the number of “full line” shops that do clothes, home, and food down from 250 to 180.
M&S shares rallied 10p, 6%, to 166p. Five years ago they were more than double that.
Broker Peel Hunt said: “M&S’ optimism about the future is guarded, but at least it exists and is credible. Current trading has been good, especially in Food, and certain categories of Clothing and Home (C&H) have also started well since restart 3 (dresses in particular). There is still a lot of work to do here but the plan is coherent.”
Rowe said: "In a year like no other we have delivered a resilient trading performance, thanks in no small part to the extraordinary efforts of our colleagues. In addition, by going further and faster in our transformation through the Never the Same Again programme, we moved beyond fixing the basics to forge a reshaped M&S.”
M&S took £306 million in government support to get through Covid which it said “enabled us to maintain employment”.
Debt fell by £450 million to £3.5 billion, which was welcomed, though the borrowings are still higher than the market value of the business.
A tie-up with Ocado that many regarded as too expensive at £750 million, is beginning to bear fruit.
John Moore, senior investment manager at Brewin Dolphin, said: “The food division and the Ocado partnership have been the focal points for M&S, and are beginning to reap the rewards of investment as well as the changes that have been put in place and accelerated during the pandemic. However, even more transformation of the company is required.”
Russ Mould at AJ Bell said: “There is still much work to be done and those shareholders who have toughed it out this far will have heard many previous declarations from M&S management that ‘the transformation has moved to the next phase’ and most of those starts have proved to be false.”
No dividend will be paid to shareholders.
What commentators say
Chris Daly, CEO at the Chartered Institute of Marketing said:
“Marks & Spencer’s bleak results come as no surprise as the difficult trading conditions of the past year and the successive lockdowns have had a big impact on the retailer. Already on the back foot pre-pandemic due to its limited online offering, this stalwart of the high street needs to swiftly adapt to the consequences of covid.
“Investing in its partnership with food delivery giant Ocado strengthened its online food sales offering, enabling customers to easily access quality food without having to leave their homes. It remains to be seen if chief executive Steve Rowe can do the same for online clothing, although with a new website and the addition of third-party clothing, signs are promising."
Freetrade analyst David Kimberley said: “Over the past four years, M&S managed to pay out somewhere in the region of six times earnings in dividends. Looking at today’s results you have to wonder what they were thinking.
Even prior to the pandemic it was obvious the group needed to make some big changes and the adjustments to today’s income statement make clear just how costly those are going to be.
It brings to mind the line from Danny in Withnail & I about holding on to a balloon for too long. M&S decided to delay the inevitable and hold on. Now they’re facing the consequences.
The result is any shareholder expecting a dividend from M&S is going to be waiting quite a while before it arrives.
To be fair, there were some positives here too. A cut at the group’s debt pile won’t go amiss and if the investment in operations pays off as M&S says it will then shareholders can expect better margins going forward.
John Moore, senior investment manager at Brewin Dolphin, said: “The loss reported in today’s results from M&S will likely be what grabs the headlines; but, away from that, a meaningful reduction in debt and the recognition that the company needs to manage and reimagine its physical estate are steps in the right direction. The food division and the Ocado partnership have been the focal points for M&S, and are beginning to reap the rewards of investment as well as the changes that have been put in place and accelerated during the pandemic. However, even more transformation of the company is required and it is encouraging to see that acknowledged and set out in some detail in this statement. The important thing for M&S is the execution of its plan and further progress on property – to underline the issue on property, lease liabilities alone are almost the size of the company’s market value. That said, some encouragement has more recently been expressed in the share price and, in time, there is the possibility of ultimate redemption for the company in returning to the FTSE 100, should it execute its changes well.”