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Marks & Spencer profits nosedive 63% as it spends hundreds of millions on turnaround plan
REUTERS/Toby Melville
LONDON — Marks & Spencer's bottom line pre-tax profit tanked by 63.5% last year, as the struggling department store spent hundreds of millions on a turnaround plan and clothing sales continued to decline.
Marks & Spencer published its full-year results on Wednesday for the 52 weeks to April 1. Here are the key figures:
Revenue: Up 2.2% on the previous year to £10.6 billion;
Clothing & home sales: Down 2.8%;
Food sales: Up 4.2%;
Total UK sales: Up 1.3%;
Profit before tax and adjusted items: Down 10.3% t0 £613.8 million;
One-off costs: £437.4 million;
Pre-tax profit: Down 63.5% to £176.4 million.
The results show that, while food remains a bright spot for M&S, the department store is still struggling to make things work for its crucial clothing division, traditionally the core strength of the businesses.
M&S shares have opened down over 1% on the back of the results. Here's how they look after just over 10 minutes of trade in London:
Markets InsiderHowever, there are signs that things might be going in the right direction. While total clothing sales are down, a reduction in discounting means profit margins here have risen by 105 basis points. Full price sales are also up 2.7%.
CEO Steve Rowe says M&S has stabilised its market share and is "build[ing] strong foundations for the future." Rowe puts the collapse in bottom line pre-tax profits down to the cost of his turnaround plan, outlined last year.
"As we anticipated, the planned restructuring of M&S has come with a cost and has impacted profits, but the business is still strongly cash generative and we reduced our net debt," Rowe says in the statement.
Marks & Spencer cut around 590 jobs from its head office last year, which resulted in restructuring costs of £15.4 million. Closing 10 UK stores cost £47.3 million and closing international stores in 10 overseas markets cost it £130.5 million.
However, the biggest one-off cost for M&S was the closing of its defined benefit pension scheme, which cost it £127 million. (Defined benefit pension schemes have been running up large deficits in recent years. You can read why here.) Raising base pay for staff to £8.50 an hour also cost M&S £23.6 million.
Rowe says: "We achieved a huge amount in the year and whilst there is still much to do, I am pleased with our progress and we remain on track.
"Looking ahead, we will continue our programme of self-help in a tough trading environment. We remain committed to delivering for our customers and shareholders as we build sustainable foundations for the future."
Marks & Spencer says it expects to spend another £400 million on its turnaround plan next year and warns that inflation is likely to push up its costs.
'It’s not going to be an easy ride'
Laith Khalaf, a senior analyst at Hargreaves Lansdown, says in an email responding to Wednesday's results: "On top of its own singular problems, M&S is facing some big economic headwinds, in particular the fall in sterling, which is pushing up the price of food and clothes against a backdrop of squeezed consumer incomes.
"The high street is also in decline as more of us turn to our mobiles and tablets to do our shopping, which leaves M&S fighting an even steeper uphill battle. All of this paints a pretty gloomy picture for the high street retailers for the foreseeable future.
"The new strategy at Marks and Spencer is much needed, and may eventually pay off, but it’s not going to be an easy ride."
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