M&S 'hibernates' £200m of unsold stock as Covid-19 hits bottom line

Marks & Spencer faces further “bumps in the road”, analysts have warned, after the high street stalwart saw its annual profits stumble after taking a £52 million hit due to coronavirus.

Marks & Spencer is one of the most familiar names on the UK high street. Picture: Lisa Ferguson

The retail giant revealed that total profits fell 21 per cent to £403.1m after it was dragged down by its embattled clothing business. It came as the company told investors it has “hibernated” around £200m of unsold stock in warehouses for spring 2021.

Sales of clothing and home products plummeted after stores were shut in the face of the outbreak, though its food halls have remained open.

M&S said it expects a 70 per cent drop in UK clothing and home revenues over the four months to July, before a gradual recovery. However, it predicted annual revenues for the current year will fall by £1.5 billion as a result.

Alasdair Ronald of investment firm Brewin Dolphin said: “Marks & Spencer did not have its troubles to seek prior to the outbreak of Covid-19, and the crisis has only made matters worse.

“As expected, profits have fallen significantly and there are signs that the lockdown period has taken a heavy toll on its clothing and home and international divisions, which appear to be structurally challenged.”

He added: “Management appears to acknowledge the seismic changes it now faces, implementing a substantial cost-cutting programme and re-balancing the overall business. These moves, combined with greater liquidity headroom, may help stabilise Marks & Spencer through one of the most challenging periods in its history, but there are likely to be more bumps in the road ahead.”

M&S expects food revenues, impacted by weaker sales and closures at hitherto busy travel locations, to fall by 20 per cent in the period to July before levelling out, with a £400m impact on annual revenue.

Chief executive Steve Rowe said the group was moving forward with around £1bn of actions, including some £500m of planned cost reductions, to mitigate the impact of the outbreak. He also hailed the company’s progress ahead of the launch of its joint venture with Ocado in September to deliver products to customers.

M&S said group sales dipped 1.9 per cent to £10.1 billion during the year. Like-for-like food revenues increased by 1.9 per cent, while its clothing business saw like-for-like revenues dive 6.2 per cent as it was impacted by availability issues in the first half of the year.

Rowe said: “Last year’s results reflect a year of substantial progress and change including the transformative investment in Ocado Retail, outperformance in food and some green shoots in Cvothing in the second half.

“However, they now seem like ancient history as the trauma of the Covid crisis has galvanised our colleagues to secure the future of the business.”

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, noted: “The current crisis serves as a jolt to M&S’ system. Coronavirus has accelerated the shift to online, and customer behaviour has been changed forever.

“There are brighter spots from the food business, with the launch of its products on Ocado running to schedule.”

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