Disappointing clothing sales at high street retailer Marks & Spencer (M&S) have led to the company reporting its first year-on-year drop in annual profits since 2009.
The one per cent slide in underlying profit before tax to £705.9 million for the 12 months ending March 31st 2012, was blamed by the business on wider economic conditions, although increased competition in high street fashion was also a significant factor.
Plans set out by CEO Marc Bolland in November 2010 to increased total sales by 2.5 billion in three years have now been scaled back by the retailer to a target of just £1.7 billion in reaction to the slump in the UK economy.
Bolland claimed the two per cent rise in group sales showed that M&S had “performed well in a challenging economic environment”, however Neil Saunders, Managing Director of analyst group Conlumino, argued that the figures published today were somewhat disappointing.
“While these results are not terrible, neither are they particularly stunning. In our view, there is a degree to which they show M&S is happily muddling along in the middle and is finding it increasingly difficult to generate strong growth from the UK business,” Saunders said.
On a like-for-like basis UK sales were broadly flat, rising just 0.3 per cent, as food sales increased 2.1 per cent while general merchandising sales dropped 1.8 per cent year-on-year over the 52 week period.
In clothing, menswear, kidswear and lingerie have held up relatively well but the retailer’s womenswear performance was less impressive and Saunders claims that this is due to the improvements of rivals such as John Lewis and poor store layout.
To try and address this problem M&S has launched several pilot stores in the UK with revised store design, and Bolland confirmed today that a further roll-out of this refurbishment programme will now commence.
Food sales, in contrast have stayed very strong at a time when several of the leading supermarkets are struggling for sales, and the 5.8 per cent growth in international trading and the 18 per cent spike in multichannel sales were also highlights for the firm over the year.
“Whilst the economic environment has deteriorated since we first set out our strategic plans, we have made significant progress,” Bolland added.
“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 retailer finished the year with a slightly reduced net debt of £1.86 billion and the company’s board has recommended the same full-year dividend awarded in 2011 - 17p per share.