Marks & Spencer (MKS) share price rises as retailer promises to ramp up store closures as profits slump
The City was braced for a slump in profits at Marks & Spencer, and a slump was duly delivered this morning as the retailer said it was “facing facts” amid “the continued migration of clothing and home online”.
The company said it had to modernise the business to make sure it stays competitive, with “accelerated change” the only option. It has promised quicker action on trimming its store estate – which cost it £321m during the past year.
Shares rose more than five per cent in early trading.
Read more: M&S confirms over 100 stores will close by 2022
The figures:
Profit before tax fell 62 per cent, while group revenue was brighter – up 0.7 per cent to £10.7bn for the 52 weeks to 31 March.
M&S said the profit before tax and adjusting items, which had dropped by 5.4 per cent, had been buffeted by a fall in food profit margins. The adjusting items came to a total of £514.1m, including £321.1m for the M&S UK store estate closure programme.
The retailer is expecting further accounting charges of up to £150m as it continues closing stores.
Its international business reported profits before adjusting items more than doubling to £135.2m, with M&S citing the successful exit of loss-making owned markets and “favourable currency effects”.
Why it’s interesting:
Much has been made of the high street stalwart’s store closures amid its wider turnaround plans, with more closures announced this week.
Today, it set out its stall, saying the tough times seen across the high street had reinforced its conviction about the need for the transformation of M&S.
“Changes in the high street and migration online mean that we have to be decisive with our store estate, renewing and closing stores more quickly,” the retailer said.
Online sales are up, but M&S said its capability is behind strong competitors and the website is too slow.
As for its clothing and home business, revenue dipped 1.4 per cent, which the retailer said was due to “planned removal of two clearance sales, and unseasonal second half trading conditions”.
What the company said:
Steve Rowe, Marks & Spencer chief executive, said:
At our half year results in November I outlined the need for accelerated change at M&S. The first phase of our transformation plan, restoring the basics, is now well under way and the actions taken have increased the velocity of change running through our business. These changes come with short-term costs which are reflected in today’s results.
There are a number of structural issues to address and we are taking steps towards fixing these. The new organisation will largely be in place by July and the team is now tackling transforming our culture to make M&S a faster, lower cost, more commercial, more digital business. 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.
What the analysts said:
Richard Lim, chief executive, retail economics, said: “Accelerating the pace of transformational change has led to significant write-offs across the business. Overcapacity concerns are at the heart of plans to close a quarter of legacy Clothing and Home space. The retailer has too much space in today’s digitally-driven age of consumption. These are bold decisions to embrace, adapt and innovate in order to survive.
“Focusing on prime locations with sustainable levels of footfall, pushing forward right-sizing initiatives and utilising excess space to sweat assets will be critical in restructuring the business that is fit-for-purpose moving forward.”
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