M&S sees progress despite weaker sales, hails its fashion hits, says e-tail is strong
today May 22, 2019
“Good progress in restoring the basics” was the opening statement of M&S’s results for the year to the end of March on Wednesday. And it suggested that the company’s long awaited turnaround still hasn't happened, but it remains hopeful.
For this year, it has big plans to upgrade its stores, as well as revamping its Per Una fashion line, boosting digital and overcoming some supply chain issues.
The M&S turnaround is a long-running saga and it clearly still has a long way to run based on the latest figures as group revenue fell 3% to £10.37bn, while pre-tax profit (excluding special items of over £400m linked to its transformation programme) dropped 9.9% to £523.2m. Reported pre-tax profit rose 26.6% to £84.6m and post-tax profit was up 28.2% to £37.3m, not a huge figure for a business whose turnover is more than £10bn.
In the crucial UK Clothing & Home operation, revenue fell 3.6%, partly due to store closures, with like-for-like revenue down only 1.6%. And e-commerce came good after some disappointment in recent years as UK Clothing & Home e-revenue grew 9.8%. In fact, clothing growth beat the online market and M&S improved its clothing e-market share by 0.3 percentage points.
RANGE AND SUPPLY ISSUES
Overall, M&S said that “encouraging progress in Q3 was constrained by weak availability in Q4 as we sold out of fast-selling lines and experienced supply issues.”
The company also said the range was too wide “splintering our buying scale and making our shops challenging to navigate.” And it added: “Our size ratios have been historically misaligned with the profile of the contemporary family age customer we aim to appeal to. However, where we have made progress in pruning options and introducing slimmer fits and more mid sizes.” The customer response has been “very strong” with its new denim launch producing an initial 20% sales uplift and its sales of £15 women's jeggings up 30% over the campaign period.
It pulled no punches about its supply chain issues and other legacy processes. “Creating a new range architecture in a business with weak processes, a slow supply chain and where buyers are building their confidence has proven challenging, and our sales both in-store and online have been frustrated by poor availability in Q4,” it said. “Many popular lines sold out prematurely because of the failure to increase the depth of buy and the slowness of the stock flow.”
Despite these “teething problems”, it said with an encouraging customer response to initial changes, “we expect to deliver a more marked reduction in options and range duplication, with a substantial increase in the number of '£1m+' lines for Autumn, a significant improvement in size ratios, further focus on style and fashion and additional investment in value.”
This will be reinforced “by the update of the sub brand strategy," including the relaunch of the Per Una range “where the initial customer reaction to early changes we have made has been positive.”
And it will focus more on full-price selling as the percentage of Clothing & Home sold at discount “remains too high.”
This new approach will also come along with a revamp of its stores for a more contemporary in-store environment,” it said, referring to the advanced age of many of its stores. A “renewal brand format and modernisation will be piloted in the year ahead.”
INTERNATIONAL AND FOOD
Total International revenue fell 13.4% at constant currency but excluding the impact from exit markets and Hong Kong, it rose 1.1%. In Clothing & Home it implemented “market right pricing across most markets and saw an improving trend in retail sales in Q4.”
Its objective internationally is to create "a much more competitive localised incarnation of M&S in those selected markets where we can attain a sustainable market share.” This included a substantial increase to around 15% of locally designed clothing ranges, including an increase in its growing Indian joint venture which now has 77 stores.
Meanwhile the UK food business, which is a key driver of footfall for those stores that offer the firm’s full product selection, showed “good signs of progress in arresting the decline in like-for-like revenue.” UK Food revenue declined 0.6%, with like-for-like revenue down 2.3% reflecting the adverse impact of Easter timing in both Q1 and Q4.
CEO Steve Rowe said of all this that the company has seen “green shoots”, but admitted that it hasn’t been “consistent in our delivery in a number of areas of the business. But he added that it’s “now well on the road to making M&S special again.”
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