Marks & Spencer (MKS.L) saw its pre-tax profits slide 21.1% in the year to the end of March, with the coronavirus lockdown hammering its troubled clothing division.
The iconic high street brand said £500m ($612m) of cost-cutting measures would help steer it through the crisis, which has forced it to close its clothes shop and furlough thousands of staff.
Steve Rowe, its CEO, said: "Last year's results reflect a year of substantial progress and change including the transformative investment in Ocado Retail, outperformance in food and some green shoots in clothing in the second half. However, they now seem like ancient history as the trauma of the COVID crisis has galvanised our colleagues to secure the future of the business.”
The M&S chief said some customer habits would return to normal but others had “changed forever,” accelerating a shift towards digital retail, reshaping the high street and changing working habits. He added that M&S had “discovered we can work in faster, leaner, more effective way,” and was determined to make the company “more agile” in the future.
The company’s final year results show profits before tax and adjusted items dropped from £511.7m the previous year to £403.1m in the year to 28 March. The report links the decline partly on a £52m hit in March “largely” blamed on the pandemic and lockdown.
The company said it had taken a £212.8m hit on costs and stock write-downs linked to the virus, and with this and other ‘exceptional’ items included, profits came in at £67.2m. That marked a 20.2% decline.
The retailer’s reported free cash flow also dropped sharply, down 61.3% to £225m.
Like-for-like clothing sales dropped 6.2% and operating profits slid 37%, with problems over stock availability in the first half of the financial year blamed for the slide.
M&S is assuming a 70% drop in clothing and home sales versus budget for the four months to July, followed by a “slow recovery” by February 2021. It is expected to wipe £1.5bn off revenue for the financial year. The retailer confirmed large stores and M&S.com will begin selling “complementary guest brands” to broaden appeal.
READ MORE: Ocado shares soar on rising sales
Like-for-like food sales grew 1.9% in the year to the end of March however, with the company saying sales volumes outperformed the market and reflected rising “value perception” from shoppers. COVID-19 pushed up sales by an estimated 0.3% in March. Full-year operating profits rose 11.2%. Most M&S food halls remain open.
M&S has strengthened its online grocery presence too by through a partnership with Ocado, with 4,000 Waitrose products to be swapped for 6,000 M&S ones in September.
The results statement appeared to boost investors’ expectations of the company, lifting stocks by 3.5% in early trading on Wednesday.
But around 27,000 staff have been furloughed with many clothing and home stores closed. Around 3,000 colleagues had to shield themselves from the virus for 12 weeks, and a fifth of colleagues were absent just before the lockdown, mostly to look after family members with schools closing.