Retail giant Marks & Spencer has seen annual profits tumble by nearly two-thirds and revealed sales across its under-pressure clothing arm have plunged back into reverse.
Chief executive Steve Rowe admitted the group’s overhaul has “come with a cost” as it posted a 63.5 per cent plunge in bottom line pre-tax profits to £176.4 million. Underlying pre-tax profits were 10.3 per cent lower at £613.8m in the year to 17 April.
The group said sales in its clothing business dropped 5.9 per cent in the last three months, with falls compounded by the timing of Easter, marking an abrupt end to the revival seen in the third quarter, when sales rose by 2.3 per cent.
M&S said the timing of its December sale also knocked fourth-quarter trading which, when combined with the Easter impact, knocked around 3.8 per cent off clothing and home sales and around 1.9 per cent off food sales. This left like-for-like sales in its food halls 2.1 per cent lower in the quarter.
The profits plunge comes as Rowe has invested heavily in slashing prices and overhauled its clothing ranges to win back customers.
Its results were also hit by the cost of its swingeing UK store closure programme, its move to pull out of ten international markets and the decision to shut its defined benefit staff pension scheme to future accrual.
Rowe said: “As we anticipated, the planned restructuring of M&S has come with a cost and has impacted profits. Looking ahead, we will continue our programme of self-help in a tough trading environment.”
• READ MORE: Halfords boss Jill McDonald to head M&S clothing arm
The group cautioned that the outlook remains “uncertain”, following a clothing market slump over the past year, but pledged to continue focusing on improving its clothing arm and keeping prices low despite cost pressures from the pound.
M&S said it plans to cut store space devoted to clothing and home products by around 1 per cent to 2 per cent and revamp around 25 per cent of its non-food shop space in the current financial year, while growing its Simply Food chain by around 90 new stores. It wants to add around another 250 new Simply Food outlets by the end of the 2019-20 financial year.
But the cost of its turnaround will continue to weigh on results, the group warned, particularly in the first half of the new financial year.
The group’s disappointing fourth quarter left overall UK like-for-like sales 3.6 per cent down in the year to 17 April, with a fall of 3.4 per cent across clothing and home and a more resilient 0.8 per cent decline in the food business.
M&S insisted it was “encouraged by early evidence that our strategy is working”, with full-price sales up 2.7 per cent with strong growth in the second half, and total market share stabilising at the end of its financial year.
Rowe has already warned that profits would take time to recover as its clothing turnaround beds in, following moves to update its ranges and cut the number of promotions in favour of lower everyday prices.
M&S recently poached Jill McDonald, the chief executive of Halfords, to lead the turnaround in its clothing business.
She has been recruited into the new role of managing director for clothing, home and beauty, joining the retailer in the autumn of this year.
The group has also named former Asda boss Archie Norman as its new chairman from 1 September, to succeed Robert Swannell, who is retiring after six years in the role.