M&S has reported a fall in annual profits for the third year in a row

M&S has reported a fall in annual profits for the third year in a row

UK retailer Marks & Spencer this morning (20 May) revealed a drop in full-year earnings, pulled down by a like-for-like fall in clothing sales. Chief executive Marc Bolland insists the general merchandise division is seeing signs of improvement. But analysts offer mixed views on the retail group's results. 

Bernstein Research analyst Jamie Merriman:
"In 2H, the general merchandise division performed slightly worse than expected, with the division seeing total sales drop 0.4% vs the previous year. In addition, gross margin was slightly worse than expected, contracting by 120bps in the second half, below our expectations for 100bps contraction.

"While management's tone remains positive and confident in the transformation of the general merchandise division, we believe the stock reaction today will be driven by how much credit investors are willing to give M&S after another year of relatively weak results."

Cantor Fitzgerald analyst Freddie George:
"We continue to believe it will take a number of seasons before the existing team is able to manifest a marked improvement in performance in womenswear. There has, we believe, been an improvement in the showcase autumn/winter ranges but the branding and the demographic and age profile of its target customer remains unclear. The initiatives relating to the supply chain and IT address under investment from the past and bring the infrastructure up to the standards of international peers but will not, we believe, lead to a significant increase in profits over the medium term."

Edison Investment Research analyst Victoria Buxton:
"The logistical investments behind e-commerce and sourcing, in combination with its new store lay-out concept, and brand repositioning especially within the general merchandise business mean that M&S should now able to compete more effectively with its multi-channel peer group, and we would hope to see evidence of this building through the current financial year.

"The results for financial year to March came in slightly ahead of revised expectations, but having reached the end of a three year transformation plan the focus should now be very much on future delivery."

Conlumino managing director Neil Saunders:
There is a saying among climbers which M&S should heed: it isn’t the mountain ahead that wears you out; it’s the grain of sand in your shoe. The grain of sand in M&S’s shoe is a continued lack of vision and ambition on clothing and, in particular on womenswear. Until it is removed, once and for all, M&S’s advances will be limited. 

"M&S has quite a lot of work to do here. The latest ranges are hit and miss with some strong key pieces and themes along with some rather odd and jarring designs. The problem is, however, not how products look at the controlled environment of the launch show, but how they look in store. Here M&S continues to suffer from a very one dimensional approach to merchandising which fails to create inspiration or excitement."