Marks & Spencer logs lower profits, warns on turnaround plans

LONDON, United Kingdom – British retail giant Marks & Spencer posted sliding annual earnings Wednesday, May 25, and its share price sank after warning that a new turnaround plan for its clothing division would hit profits.

Net profits slid 16% to £406.9 million ($592 million, 529 million euros) in the group’s financial year to April 2, M&S said in a results statement. That compared with profit after taxation of £486.5 million in 2014/2015.

Shares plunged more than 8% as new boss Steve Rowe predicted that its overhaul and tough trading conditions would have an “adverse effect” on its performance.

Underlying pre-tax profits however edged 4.3% higher to £689.6 million, while sales grew 2.3% to £10.6 billion despite a drop at its clothing and home unit.

M&S, which has 852 branches across Britain, added it would simplify its clothing ranges, slash prices, and increase the number of in-store staff as part of a new turnaround strategy.

“We are clear on the actions needed to recover and grow clothing and home, which is our top priority; to continue to grow our food business; and to focus on driving profitability,” added Rowe, who took over from Marc Bolland in April.

“We are investing to re-establish our price position by sharpening prices and to enhance service by putting more employees into our stores.

“These actions, combined with the difficult trading conditions, will have an adverse effect on profit in the short term.”

The group will re-focus its clothing division on “contemporary style” and “wardrobe essentials” to win back customers, while it will reduce the number of product lines in its ranges.

“Our results last year were mixed. We continued to outperform on food but we underperformed on clothing and home sales,” added Rowe.

“This is not satisfactory and today we are outlining our initial plans to address the issues and to position Marks & Spencer to deliver profitable sales growth.”

Rowe said Wednesday’s announcement marked the first phase in the group’s strategic plan, adding it would review its cost base and make further announcements later in the year.

In later morning deals, M&S shares were down 7.7% at 410.60 pence, topping the fallers board on London’s FTSE 100 index of top companies.

“Having reported better-than-expected underlying (profits), despite another weak sales performance in clothing and difficult conditions in its international markets, M&S is selling the advice that profits will now go down before they go up again,” noted analysts at investment firm Edison in a note to clients. – Rappler.com