Drop in profits for Marks & Spencer amid sales dip in clothing arm
Retail giant Marks & Spencer has seen annual profits tumble by nearly two thirds and revealed sales across its under-pressure clothing arm have plunged back into reverse.
Chief executive Steve Rowe admitted the group's overhaul has "come with a cost" as he posted a 63.5% plunge in bottom line pre-tax profits to £176.4 million on a comparable 52-week basis.
Underlying pre-tax profits were 10.3% lower at £613.8 million in the year to April 17.
The group said sales in its clothing business dropped 5.9% in the last three months, with falls compounded by the timing of Easter, marking an abrupt end to the revival seen in the third quarter, when sales rose by 2.3%.
M&S said the timing of its December sale also knocked fourth quarter trading which, when combined with the Easter impact, knocked around 3.8% off clothing and home sales and around 1.9% off food sales.
This left like-for-like sales in its food halls 2.1% lower in the quarter.
The profits plunge comes as Mr Rowe has invested heavily in slashing prices and overhauled its clothing ranges to win back customers.
Its bottom line results were also hit by the cost of its swingeing UK store closure programme, its move to pull out of 10 international markets and the decision to shut its defined benefit staff pension scheme to future accrual.
Mr Rowe said: "As we anticipated, the planned restructuring of M&S has come with a cost and has impacted profits.
"Looking ahead, we will continue our programme of self-help in a tough trading environment," he added.
The group cautioned the outlook remains "uncertain", following a clothing market slump over the past year, but pledged to continue focusing on improving its clothing arm and keeping prices low despite cost pressures from the pound.
M&S said it plans to cut store space devoted to clothing and home products by around 1% to 2% and revamp around 25% of its non-food shop space in the current financial year, while growing its Simply Food chain by around 90 new stores.
It wants to add around another 250 new Simply Food outlets by the end of the 2019/20 financial year.
But the cost of its turnaround will continue to weigh on results, the group warned, particularly in the first half of the new financial year.
The group's disappointing fourth quarter left overall UK like-for-like sales 3.6% down in the year to April 17, with a fall of 3.4% across clothing and home and a more resilient 0.8% decline in the food business.
M&S insisted it was "encouraged by early evidence that our strategy is working", with full-price sales up 2.7% with strong growth in the second half, and total market share stabilising at the end of its financial year.
Mr Rowe has already warned that profits would take time to recover as its clothing turnaround beds in, following moves to update its ranges and cut the number of promotions in favour of lower everyday prices.
M&S has recently poached the chief executive of Halfords - Jill McDonald - to lead the turnaround in its clothing business.
She has been recruited into the new role of managing director for clothing, home and beauty, joining the retailer in the autumn of this year.
The group has also named well-respected former Asda boss Archie Norman as its new chairman from September 1, to succeed Robert Swannell, who is retiring after six years in the role.