Marks & Spencer said today that it would be speeding up its current turnaround programme after posting a 21.2% fall in annual profit and revealing that the coronavirus lockdown has decimated sales figures in recent weeks.
Over the year to 28 March, the ailing group’s adjusted pre-tax fell from £511.7m to £403.1m due to weaker sales performance and a £52m hit in March from the crisis. Total revenues were down 1.9% to £10.18bn.
The group’s food unit continued its recovery during the year with like-for-like revenue up 1.9% and operating profit growing 11.2%. However, clothing like-for-likes declined 6.2% with operating profit plummeting 37% following a hit from poor availability in the first half.
In the first six weeks of its new financial, clothing sales were down a whopping 75%, with a boost in online orders failing to offset the hit from the closure of its physical stores during lockdown.
Food sales were also down 8.8% as strong performance in its standalone Simply Food stores was offset by lower sales in travel franchise units and the closure of in-store hospitality and cafes. However, the company’s Ocado Retail joint venture delivered 40.4% revenue growth for the 9 weeks to 3 May with M&S stating that switchover and synergy plans were on track.
Before the pandemic hit, M&S was in the middle of a ‘transformation’ programme to re-invent itself after years of underperformance. However, CEO Steve Rowe said today any progress made last year now seemed like “ancient history” following the outbreak and the hit to its business.
Today, the group launched its ‘Never the Same Again’ programme which aims to “draw on learnings from the crisis and capitalise on the opportunities to drive the transformation plan in a changed consumer environment.”
M&S said accelerated priorities included a renewed focus on online through its partnership with Ocado and making its food supply chain more efficient. It will also step up re-engineering and range reductions in its clothing and home business, and the reshaping of its store estate to fewer modern outlets.
Rowe highlighted that the pandemic had transformed customer and working habits. “I am determined to act now to capture this and deliver a renewed, more agile business in a world that will never be the same again,” he said.
M&S expects the impact of the crisis to last through the 2020/21 year and that subsequent demand may be depressed. It is taking actions totalling over £1bn to deal with the crisis, including £500m of planned cost reductions in areas including marketing, logistics and recruitment.
The group is also making moves to manage cash, secure extra liquidity, and renegotiate lease contracts with landlords. Excess clothing stock worth £200m will be put into storage for next year in anticipation of weak demand for the remainder of 2020. Meanwhile, central support costs and headcount will be “examined at all levels.”
The group announced in March that it would not pay a final dividend for the 2019/20 year, saving £130m, and said last month it did not anticipate paying any in 2020/21, saving £210m.
Despite all these measures and some cushioning provided by its food business, analysts estimate M&S will see a substantial profit fall in the current year.
NAM Implications:
- A perfect storm affecting M&S.
- Time to add transparency by separating the food and non-food businesses?
- Otherwise anticipate further dilution of food by non-food…
