• FY profit slipped 74.8% to GBP29.1m (US$38.9m) from GBP115.7m a year earlier.
  • Clothing and home sales were down 1.4% over the year.
  • M&S incurred a GBP321.1m bill in the period relating to its UK store estate closure programme.
Yesterday (22 May), the retailer announced plans to shutter more than 100 stores, up from 60 originally planned

Yesterday (22 May), the retailer announced plans to shutter more than 100 stores, up from 60 originally planned

M&S has revealed profits slumped by almost three-quarters last year as a result of declining sales of clothing, food and homeware and what CEO Steve Rowe called "short-term costs" as a result of its turnaround plan.

In the year to 31 March, net profits were down 74.8% to GBP29.1m (US$38.9m) from GBP115.7m a year earlier. On an adjusted level, profits fell 5.4% to GBP580.9m, impacted by a fall in food gross margin.

Clothing and home sales were down 1.4% over the year, with the retailer blaming the planned removal of two clearance sales and unseasonal second-half trading conditions, with like-for-like sales falling 1.9%. However, gross margin improved by 50 basis points.

Total sales edged up 0.7% to GBP10.7bn. UK sales grew 1.8% for the year, but on a like-for-like basis fell 0.9%. International sales were down 10.2%.

M&S paid around GBP514.1m in charges last year, including GBP321.1m on its UK store estate closure programme.

Yesterday (22 May), the retailer announced plans to shutter more than 100 stores, up from 60 originally planned, before 2022 as it reshapes its UK store estate in line with its target to take at least a third of sales online.

Maureen Hinton, group retail research director at GlobalData, noted after dominating the UK clothing market for decades, M&S is "perilously close" to losing its status as the number one clothing retailer to Primark. She said the closures will only hasten the decline unless M&S can shift the lost sales to its online channel and transfer to its other stores.

The acceleration of its UK store estate programme is part of the retailer's wider five-year transformation plan it says aims to "make M&S special again".

Under the plan M&S has the ambition to create fewer, better clothing and home stores, which will be larger, digitally enabled, better located and more inspirational for customers to shop.

As a result, the retailer says it is on the way to closing some 25% of its legacy clothing and home space, and expects a year-end space reduction of about 5% while gross margin is forecast to be +50 basis points, with the first half of the year adversely affected by currency and sale timing.

In addition, UK costs are set to decrease by up to 1%, as a result of cost efficiencies and lower depreciation offsetting the costs of new space, channel shift and inflation. 

"At our half-year results in November I outlined the need for accelerated change at M&S," said CEO Steve Rowe. "The first phase of our transformation plan, restoring the basics, is now well underway and the actions taken have increased the velocity of change running through our business. These changes come with short-term costs which are reflected in today's results."

"There are a number of structural issues to address and we are taking steps towards fixing these. The new organisation will largely be in place by July and the team is now tackling transforming our culture to make M&S a faster, lower cost, more commercial, more digital business. This is vital as we start to leverage the strength of the M&S brand and values across a family of businesses to deliver sustainable, profitable growth in three to five years."

While the retailer said it has made a "rapid" start with the enabling steps to deliver its ambition of reducing costs by at least GBP350m, its supply chains in both clothing and home and in food require "significant upgrades", to boost speed to market and reduce high stock levels in clothing.

Kate Ormrod, lead analyst at GlobalData, notes today's results - "as uninspiring as its clothing ranges" - once again emphasise M&S's reliance on its food business.

She adds, while the GBP51.6m sales decline in clothing and home is of little surprise after yesterday's store closure announcement, not biting the bullet earlier will haunt the retailer for some time – just as it should New Look, Debenhams and Arcadia.

However, Ormrod says that while it may no longer be the go-to clothing and home destination for the majority, with shoppers having lost trust in the brand, M&S states that its clothing and home customer base grew for the first time in five years, although it neglects to provide figures.

"This shows M&S is still worthy of consumers' consideration in the shopping process and that it has a shot at driving customer acquisition and winning back lapsed shoppers," she explains, adding M&S needs to up its game to drive engagement and loyalty.

"Its image as a beleaguered retailer does not help and M&S must shift brand perception; but it can only do so by providing shoppers with consistency in product, service and in-store experience. While still costly to implement, a smaller portfolio will make this easier to achieve. The importance of getting product right cannot be downplayed, and though a mainstay of its turnaround strategies, M&S needs to show more commitment to radically streamlining its clothing offer, removing product repetition and making its ranges easier to shop."

Meanwhile, Richard Lim, CEO of Retail Economics  adds: "Focusing on prime locations with sustainable levels of footfall, pushing forward right-sizing initiatives and utilising excess space to sweat assets will be critical in restructuring the business that is fit-for-purpose moving forward."

See also: What Marks & Spencer's FY numbers mean for clothing