M&S profits drop as sales rise just 0.5%
By Jon Whiteaker - 09:49AM - Tue 8th November 2011
Investment in new initiatives and the absorbtion of rising costs meant first-half profits were down on last year for high street giant Marks & Spencer (M&S), results released today reveal.
The retailer managed to improved overall trading in a tough market however, with UK like-for-like (LFL) sales growing 0.5 per cent and total group sales up 2.4 per cent in the 26 weeks ending October 1st 2011.
Profit before tax totalled £320.5 million in the half, down from £348.6 million during the same period last year, as food performed strongly but general merchandise sales dipped amid strong promotional activity.
Marc Bolland, CEO of M&S, commented: “Sales were ahead of last year despite tough comparatives and a challenging economic environment. Our food business in particular performed strongly. We maintained our share of the clothing and food markets.
“In an increasingly promotional environment, we managed costs tightly and took a decision to invest in giving our customers better value, choosing not to pass on the full extent of the increases in commodity prices.”
LFL food sales rose 2.1 per cent year-on-year in the half, general merchandise sales fell 1.3 per cent and international trading grew strongly by nine per cent.
A major re-launch of the M&S brand and all clothing sub-brands, including an expensive new ad campaign for its Autograph label, was conducted during the period, as was the launch of 100 new food brands and new Conran and Marcel Wanders collections in its home department.
International and multichannel expansion are the main areas of focus for most major UK retailers at present, and M&S is no different with its new French transactional website to be followed by a Paris store before Christmas and M&S Direct sales up 11.7 per cent, representing over three million visit per week.
Current trading is in line with expectations according to the company, with gross margin flat and operating costs set to rise by around three per cent in the full-year due to growth initiatives, inflation and store expansion.
Net debt fell to £1.97 billion from £2.2 billion last year and the retailer intends to invest around £700 million in capital expenditure over the full financial year, with a two per cent and ten per cent rise in retail space in the UK and internationally respectively.
“Against a challenging consumer backdrop, we took decisive action to manage the business through the short term while continuing our focus on investing in creating a stronger platform for future growth,” Bolland explained.
“We have a very exciting Christmas product offer for our customers with more innovation and choice than ever before.”