'Green shoots' at Marks & Spencer but profits fall and more stores to shut

M&S has already closed several branches including its high street store in Falkirk. Picture: Michael Gillen

The retail bellwether, which is in the process of overhauling its vast store estate, posted underlying pre-tax profits of £523.2 million for the year to 30 March, down from £580.9m the year before.

Comparable sales at its embattled womenswear arm dropped 1.6 per cent with a 1.3 per cent fall in the final three months after it was hit by the timing of Easter and poor stock availability.

Like-for-like sales in the group’s food halls fell 2.3 per cent following a 1.5 per cent decline in the fourth quarter, although this was also affected by the timing of Easter.

Chief executive Steve Rowe pointed to some “green shoots” of a turnaround, but cautioned that performance was not consistent and had been hit by its store closure programme and wide-ranging revamp plan.

M&S warned that it remained in the “difficult early stages” of its turnaround and progress would largely not come until the second half of 2019-20.

Rowe said: “Whilst there are green shoots, we have not been consistent in our delivery in a number of areas of the business. M&S is changing faster than at any time in my career – substantial changes across the business to our processes, ranges and operations – and this has constrained this year’s performance, particularly in clothing and home.

“However, we remain on track with our transformation and are now well on the road to making M&S special again.”

The results showed statutory pre-tax profits came in at £84.6m, up 26.6 per cent on the previous year. M&S also released details of a £601.3m rights issue to finance its joint venture with online grocery group Ocado.

However, there was a sharp cut in the full-year dividend payout, down 25.7 per cent to 13.9p a share.

M&S said it will axe a further 85 full-line stores and about 25 Simply Food outlets on top of the 35 full-line branches closed in 2018-19, although it added that the overall size of the chain will remain as expected as it also opens and relocates outlets.

In an update on its shop closure programme, the group said it was relocating or reducing Simply Food shops that have lower sales as it focuses efforts on the best-performing locations.

Arlene Ewing, investment manager at Brewin Dolphin, said: “These results underline that M&S is going through a significant overhaul.

“The major news is the £601.3m rights issue for the Ocado joint venture and the cut to the dividend – both moves will likely mean short-term pain for shareholders.

“Of course, the hope is that a much stronger business will emerge on the other side – but we will only know whether it has worked years down the line.

“Aside from those two major developments, it’s a relatively negative set of figures: clothing has continued to decline, as has the food business which is even more worrying. Nevertheless, management realises that drastic action is needed to stop the rot and is clearly ready to step up to that challenge.”