M&S insists ‘depressed’ clothing sales on the mend

Retailer Marks & Spencer said improving profit margins and steady market share showed its struggling clothing business was on the mend, despite a 10% drop in annual earnings and sliding sales in the latest quarter.

The company said that within a “volatile and slightly depressed” clothing market, its turnaround plan was on track. “We achieved a huge amount in the year and whilst there is still much to do, I am pleased with our progress,” said chief executive Steve Rowe, pointing to a stabilising market share in clothing, an increase in market share for full price clothes and the removal of excessive discounting.

“This is a self-help story in M&S,” he told reporters.

Shares in M&S, which have increased 20% in the last three months — partly reflecting the appointment of industry veteran Archie Norman as its new chairman — rose by up to 2.4%.

“We think that consensus profit forecasts (for 2017-2018) will hold fairly steady, albeit with improving trends in clothing margins suggesting some potential upside for the year,” said RBC Europe analyst Richard Chamberlain, who has an “outperform” rating on the stock.

Mr Rowe, a 27-year company veteran, became CEO a year ago, taking on the tough task of reviving a British institution that has fallen out of fashion over the last decade. He has set out a plan to turn around M&S’s clothing business by driving improvements in the quality, fit and availability of its ranges, while lowering prices and reducing the number of garments sold through promotions. Mr Rowe is also working through major programmes to switch UK shopfloor space away from clothing and towards food and reduce the group’s high street exposure, closing stores in 10 markets. He said last year his plans would dent short-term profit.

M&S made a pretax profit before one-off items of £613.8m (€709.6m) in the year to the start of April on revenue down 2.2% to £10.6bn (€12.3bn). That was ahead of analysts’ average forecast of £593m (€687m)but down from £690m (€799m) made in 2015-2016. The outcome reflects lower clothing and homeware sales and higher costs. After taking account of restructuring charges of £437.4m (€506.6m) pretax profit fell 63.5% to £176.4m (€204.3m). The dividend was, however, maintained at 18.7 pence.

M&S’s fourth quarter sales were hit by a later Easter falling outside the quarter and by the key days of the busy post-Christmas sale coming in the third, rather than fourth, quarter. Clothing and homeware like-for-like sales fell 5.9% in the fourth quarter, worse than analysts’ average forecast of a 3.3% decline. They had increased 2.3% in the previous quarter.


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