M&S profits dive 62% for full year

Sergio Conner
May 23, 2018

The high street staple's pre-tax profits plunged 62.1pc to £66.8m for the year ending March 2018, largely impacted by£321.1m of costs linked to shutting underperforming shops.

M&S is expected to report a second straight fall in annual profit on Wednesday, and with the retailer's shares down almost a quarter over the previous year it is in danger of soon being booted out of the FTSE 100 index.

The shares were up 2.02pc at 297.7p mid-morning.

Food margins are expected to remain under pressure in fiscal year 2019, with the company predicting a decline of up to 50 basis points.

The closures represent around a tenth of the clothing and food group's United Kingdom stores, as it grapples with weak consumer spending and intense competition from supermarkets, fashion chains like Zara and H&M as well as online giant Amazon.

Total UK sales grew 1.8 percent to 9,611.0 million pounds as UK costs were up 1.8 percent during the year due to costs of new space, inflation and channel shift offset by efficiencies and lower incentive costs.

Revenue at M&S's food business rose 3.9% to £5.87bn as the company opened more stores but sales at established outlets fell 0.3%.

"The business.is starting to make decisions that have arguably been needed for many years", said Shore Capital analyst Clive Black, who has a "hold" stance on M&S. Heavy snowfall in March from the so-called "Beast from the East" also had an impact on sales as consumers remained indoors in March.

It said online sales were growing, but that its online capability was "behind the best of our competitors and our website is too slow". "Accelerated change is the only option".

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M&S said its store closure programme would reduce costs by at least £250mln and provide a "platform for growth in later phases of our plan".

M&S admitted its clothing and home division was failing to attract younger customers and families.

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.

"There are a number of structural issues to address and we are taking steps towards fixing these", added Rowe.

"The team is now tackling transforming our culture to make M&S a faster, lower cost, more commercial, more digital business".

Rowe said it was targeting sustainable, profitable growth in three to five years time.

M&S left its dividend unchanged at 18.7p. Free cashflow before adjusting items was down 12.6 per cent to £582.4 million from £666.3 million.

"We do not think the downgrade cycle may yet be over", said analysts at Liberum, maintaining their "sell" rating.

Marks & Spencer stores in Wakefield, Castleford and Pontefract has avoided the latest round of planned closures, it has been announced.

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