M&S looks abroad to drive growth as UK figures disappoint

By GARETH MACKIE
Published on 22/05/2012 19:36

MARKS & Spencer has set its sights on becoming a “truly international” retailer after reining back its UK expansion plans in the wake of its first drop in profits for three years.

The group said total international sales were up 5.8 per cent to £1 billion in the year to the end of March, driven by strong growth in China and India, although trading conditions in Greece and Ireland remained challenging.

In comparison, total sales across its 700 UK stores rose by 1.5 per cent to £8.9bn. On a like-for-like basis, which strips out the effect of new stores, UK sales grew just 0.3 per cent.

Despite efforts to pull in customers with celebrity-laden advertising campaigns, like-for-like sales of general merchandise slipped 1.8 per cent. The decline was driven by a mixed performance in womenswear and home.

A strong performance in food sales helped total revenues across the group rise 2 per cent to £9.9bn, although that could not prevent a 1 per cent drop in underlying pre-tax profits to £705.9m – the first fall since 2009. A proposed final dividend of 10.8p per share gives an unchanged total of 17p.

Peel Hunt analyst John Stevenson said the results were broadly in line with expectations, “although we struggle to see M&S outperforming the sector”.

Chief executive Marc Bolland said: “We managed the business prudently with tight control of costs and capital investment, delivering earnings in line with last year, and substantial efficiency savings in our capital investment plans.

“We are well on track to become a truly international multi-channel retailer. By the end of this year we will be transacting from ten websites worldwide and opening around 100 international stores per year.”

The group withdrew from Europe in 2001 but it returned to the French market last year, opening a flagship store in Paris. During the year it opened 37 stores overseas, taking its total to 387 outlets in 43 countries.

In November 2010, Bolland set a target to grow revenues by between £1.5bn and £2.5bn over three years, but yesterday he said this target has been cut to between £1.1bn and £1.7bn because of the harsh economic climate.

In addition, he said the group now expected to invest £200m less in its UK stores over the remaining two years of its strategy review.

Freddie George, a retail analyst at Seymour Pierce, said he believed earnings growth at M&S would be “pedestrian” over the next two years. He added: “UK profits look as if they are stuck in a narrow range at around £700m, the refurbishment programme is looking more as a defensive move rather than a sales generator and at this juncture the company appears to be progressing too slowly with the development of its internet and international operations.”