High street retailer Marks and Spencer (M&S) has today reported a 3.2 per cent fall in pre-tax profit to £665.2 million in its full year despite a rise in sales, figures released today reveal.
Group sales reached £10 billion in the 52 weeks ended March 30th 2013, up 1.3 per cent on a year earlier while sales in the UK saw a slight boost.
Total UK sales climbed 0.9 per cent over the period while like-for-like (LFL) sales declined by one per cent as poor trade across General Merchandise (GM) impacted results.
Although M&S’ food offering proved popular with Food sales up 3.9 per cent and rising 1.7 per cent LFL, its GM sales continued to struggle amid an ongoing turnaround plan.
Total GM sales dropped 2.4 per cent over the year while LFLs decreased by 4.1 per cent and M&S CEO Marc Bolland said that the retailer is “working hard” to improve trade in the category.
“We are working hard to get the General Merchandise performance back on track,” Bolland said.
“We have already made progress in our operational execution, and our new Autumn/Winter ranges have received a positive reaction.
“We are very pleased with Food performance which benefitted from our continued focus on delivering innovation, and unrivalled quality and provenance.
“Our International operations performed well in key markets and our multichannel business delivered strong growth.”
International sales jumped 4.5 per cent compared with a year earlier after the retailer witnessed strong LFL growth across key markets and expanded both its physical and digital portfolios.
M&S opened 45 new international stores including eight new territories while its franchise operations also grew as the retailer opened 19 such new stores across 11 territories.
In Asia, the franchise business traded well with key Indian and Chinese markets reporting double-digit LFL growth during the full year while the Middle Eastern arm of the business “delivered a good performance”.
In the UK, M&S began the roll-out of its new store format with 337 stores now completed, representing more than 65 per cent of its retail space while the second phase of its store transformation got underway.
In the digital sphere, multichannel sales accelerated over the period, up 16.6 per cent despite tough comparatives.
M&S’ UK website now has over 3.6 million weekly visitors thanks to improved functionality, the retailer said, and the online business accounts for 13 per cent of GM sales.
Neil Saunders, Managing Director of analyst firm Conlumino, said of the figures: “Marks & Spencer is now two years into its three year transformation programme which aims to make it a truly international, multichannel retailer.
“On the multichannel front, M&S’s performance is reasonable but not spectacular.
“Given that M&S is not as developed in multichannel as other retail players optimal growth should ideally be some way north of the reported 16.6 per cent.
“Improvements in fulfilment, including the investment fulfilment at Castle Donnington, will certainly go a long way to increasing logistical flexibility.
“However, M&S also needs to review its online ranging, presentation and marketing to ensure that it becomes a true destination across all the non-food categories it offers.
“While international and multichannel do deliver growth, their profitability is, of necessity, somewhat weaker than traditional operations.
“As such, alongside the growth of these elements M&S also needs to focus firmly on its UK business.
“On this ‘home front’ advancement is a little less encouraging and, in clothing at least, has seemed more like a gentle evolution than a radical reinvention.”
M&S’ clothing category has undergone a period of considerable disruption in recent months, most recently with the shock departure of two senior Womenswear Buyers and ‘Knicker Queen’ Janie Schaffer after just three months in her role.
Today, the retailer announced further board changes, with Executive Director of Marketing Steven Sharp retiring next February after nine years with the business, to be succeeded by ex-Estee Lauder chief Patrick Bousquet-Chavanne who will operate as executive director for marketing and business development.
Chairman of M&S Robert Swannell said of the changes: “Steve has been responsible for many of the Company’s iconic campaigns.
“I fully respect his desire to take up a portfolio of interests and he leaves the Company with our full support, appreciation for all of his exceptional work and our best wishes.
“On behalf of all my colleagues I look forward to welcoming Patrick Bousquet-Chavanne to the Board; he brings a wealth of international experience.”
In the year ahead, the stalwart anticipates an increase in operating costs and non-recurring running costs due to the openings of its Castle Domington site and the transition to its new web platform.
However, trading over the first seven weeks of the new financial year “has been in line with expectations” and the retailer believes it is well-placed despite challenging external conditions.
While 2012/13 has marked the peak of the retailer’s investment in its transformation, 2014/15 will see M&S return to a “lower, more sustainable long-term investment level” of £550 million, allowing for consistent investment which seeks to improve free cash flow, shareholders returns and its GM margin over the next three years.
Pointing to areas for improvement at M&S such as shop floor appearance, product exclusivity and capital expenditure, Saunders noted that the retailer is currently well-positioned to maintain growth.
“These challenges are largely about distance and speed and while we certainly do believe that M&S needs to travel further and faster, we also think that it is now on the right road and is going in the right direction,” Saunders explained.
“The problem is that retail today is like a very fast paced motorway; failing to keep up with the speed of the prevailing traffic carries risks, not least of which is that of being left behind.”