“The business still has many structural issues to tackle as we embark on the next five years of our transformation"

“The business still has many structural issues to tackle as we embark on the next five years of our transformation"

Marks & Spencer is accelerating plans to close underperforming clothing departments as the UK retailer revealed flat first-half apparel and home sales and the departure of CFO Helen Weir.

The speeding up of its turnaround plan will see M&S reduce its clothing and home space by 1.5% next year in 2017/18, and comes as finance chief Weir announced her decision to step down to "pursue a plural career" after two years with the group. She will continue as CFO until a successor has been found.

The trading update today (8 November) revealed a 5.3% drop in underlying pre-tax profit to GBP219.1m (US$287.8m) for the six months ended 30 September. Like-for-like clothing and home sales were down 0.7% but the decline slowed in the second quarter to 0.1% compared to 1.2% in the first quarter. Gross margin was up 140 basis points.

Group revenue for the six months to 30 September grew 2.6% to GBP5.12bn, while net profit reached GBP84.6m from GBP15.9m last year.

"The business still has many structural issues to tackle as we embark on the next five years of our transformation, in the context of a very challenging retail and consumer environment," said CEO Steve Rowe. "Today we are accelerating our plans to build a business with sustainable, profitable growth, making M&S special again."

Rowe, who took the helm last year, is looking to revive the fortunes of the UK retail group. Last year, M&S revealed plans to close 30 larger UK stores as part of an overhaul to reduce clothing shopfloor space by 10%. An additional 45 would be downsized or converted into food-only stores, and a further 53 loss-making international stores closed.

Now, the retailer says it is undertaking a "significant" review of its cost base with the aim of generating a "substantial" reduction in legacy and structural costs.

"Increased global and digital competition, pressure on consumers' disposable income and increased cost inflation means unless we continue to adapt our business model, our competitive position will continue to erode," M&S said in its first-half update. "In this next phase of our programme we need to address structural challenges and continue to restore the basics at M&S, in order to deliver growth in later years."

In clothing and home, this will see the retailer focus on "rejuvenating" the department by "becoming a digital first organisation", with a third of its clothing and home sales online. There are also plans to modernise its supply chain, which M&S says needs to be "faster and lower cost than today".

"Our position in clothing and home has eroded over the last 15 years as online retailers, new international competitors and discounters have taken market share. However, the business retains very strong market positions in lingerie, schoolwear, denim, suits and other areas which illustrate our capability," the retailer said.

"It is our ambition that M&S will become the UK's essential clothing retailer. At all levels we are sharpening our ranges, to provide better choices with fewer options, and delivering contemporary wearable style to become more popular. With our heritage in value, we will reinvest cost savings into affordability to ensure our quality is unrivalled at any given price point."

Honor Strachan, principal retail analyst at GlobalData, broadly praised the progress M&S has made, particularly with its store rationalisation programme, an acceleration of which, she says, will help deliver improved sales densities and support like-for-like recovery.

However, she warns: "Trying to rebuild share in the losing mid-market segment will not be easy, especially since a rise in interest rates, weak wage growth and continued inflation pressures means consumers wallets will remain under pressure. M&S did start its turnaround strategy ahead of Next and Debenhams though, giving it a head start at winning shoppers back."