Marks & Spencer’s profit falls despite food gains
Underlying annual profit fell by 3.9% to £623M, in full-year results to March 29 2014.
UK food sales rose by 4.2% or 1.7%, excluding the contribution of new stores. But general merchanise, including clothing, dropped by 1.4%.
“Our food business had a very strong year,” said the retailer in a statement accompanying its results. “We consistently outperformed the market, delivering 18 consecutive quarters of like-for-like growth.”
Chief executive Marc Bolland said the retailer’s food business was routinely under-estimated. “We have done well in food – it’s always underestimated,” he told BBC Radio 4’s Today programme.
M&S’s food business had “built a stronger international position”, as the retailer completed its three-year transition from “a traditional British retailer to a multi-channel international retailer”, he added.
Focus on quality and innovation
The retailer’s food strategy was to be more specialist and focus on quality and innovation, according to its results statement. M&S food products were made exclusively for M&S and “this unique position means they are not comparable with the rest of the market”, it claimed.
“Rather than joining the race to the bottom on price, we are focused on developing top-quality ranges that are competitively priced, whilst ensuring our farmers get a fair deal too.”
M&S said it sold more than 6,400 food and drink products and had achieved record sales last Christmas. “With a 38% market share, we are the established market leader in party food and sold 5.5M packs during the festive season.
“At the same time, we continue to highlight the great value we offer on everyday essentials with sales of our Simply M&S range continuing to grow – accounting for 11% of total sales.”
The retailer’s commitment to innovation was clear, with 20% of food products being new this year, it claimed.
But Bolland admitted more needed to be achieved in its non food sector. “On general merchandise, a lot of heavy lifting has been done towards improving performance,” said. “But over the next three years there is more delivery to come.”
Bolland highlighted big investments in IT and the store online offer over the past three years. Online sales had risen by 23% in the past year.
‘How soon is now?’
But, overall, M&S’s performance failed to impress retail analysts. Stephen Springham, senior retail analyst at Planet Retail, said: “Today’s full-year results mark the culmination of ceo Bolland’s three-year turnaround plan at M&S – yet pre-tax profits continue to decline. Senior management will no doubt make reference to the ‘heavy lifting’ carried out over the past three years and emphasise that, with capex [capital expenditure] levels tailing off, profit benefits will now be forthcoming. But how soon is now?”
The business will always stand and fall on the performance of its core UK business, notably womenswear, he added. “Investors will no doubt need far more convincing that the positive trend in clothing is not only sustainable, but can also be achieved without heavy promotional activity and discounting. Today’s profit and margin trends are unlikely to bring any such comfort.”
Neil Shah, analyst at Edison Investment Research, thought M&S problems extended beyond women’s wear. “This is not just any clothing sales downturn, this is the third year in a row of falling M&S declining profits with a must-do fix to IT if Marc Bolland’s long hoped for revival in general merchandise sales is to deliver,” said Shah.
“The key to a sustainable revival in Mr Bolland’s next three-year plan will be to ensure the vital new website settles fast to drive sufficient click-through to compensate for declines in traditional store foot-fall.”
