More customers, more web sales, but M&S profits still plunge
M&S clearly has challenges ahead and its full-year results on Wednesday underlined that fact as almost every figure fell. But the previous day’s announcement of an accelerated store closure programme also showed that the UK retail giant is confronting its problems in a way its frequent earlier turnaround programmes didn’t.
So what exactly happened at M&S in the year to March 31? Well, it grew its customer numbers for the first time in five years. But the report wasn’t really about good news as group revenue dropped 0.7% to £10.698 billion. Clothing & Home revenue dropped 1.4% to £3.741 billion, or 1.9% on a comparable basis, but it “delivered solid growth in strategic focus areas such as Childrenswear, Bras and Footwear.”
The overall performance was adversely impacted by the reduction in the number of clearance sales, but at least M&S.com revenues increased by 5.2% at constant currency.
However, pre-tax profit before one-off charges fell 5.4% to £580.9 million and pre-tax profit after adjusted items plunged 62.1% to £66.8 million as its spent over £320 million on its store reorganisation programme. And that also meant net profit was down as much as 74.8% to what is, for M&S, a negligible £29.1 million.
Helpfully, the company also told us what happened in Q4, when snow and freezing temperatures had a devastating impact on the early spring season.
At constant currency, revenue was down 2.1% with the biggest sufferer being Clothing & Home as total sales dropped 3.1% and comps fell 3.4%. But the early Easter did offer a crumb of comfort with a 0.3% boost in Clothing & Home and dotcom sales rose 8% in the quarter.
VIEW FROM THE TOP
CEO Steve Rowe was blunt in his appraisal of the year’s performance, saying M&S needs to revitalise its ranges and reassert its reputation for value for money. But he also took a cautiously upbeat stance. “The first phase of our transformation plan, restoring the basics, is now well under way and the actions taken have increased the velocity of change running through our business,” he said, adding that structural change is also a priority.
So when will we start to see daylight? He added that the firm’s "new organisation will largely be in place by July and the team is now tackling transforming our culture to make M&S a faster, lower-cost, more commercial, more digital business. This is vital to deliver sustainable, profitable growth in three-to-five years.”
Three-to-five years? Clearly, effecting fundamental change at a business as large as M&S is like trying to turn around the Titanic, but management is undeniably determined to do just that.
Are we seeing any signs that the firm is beginning to shift its direction? Maybe. Clothing & Home revenue was down “due to planned removal of two clearance sales, and unseasonal second half trading conditions,” but the gross margin was up 50 basis points with full-price sales flat.
And International profit before one-off items more than doubled to £135.2m, as a result of “the successful exit of lossmaking owned markets and favourable currency effects.”
But that’s never going to be enough to rescue a giant business like M&S. The company said it’s “facing facts” and that “accelerated change is the only option” as it deals with the continued migration of clothing and home online, “the development of global competition, the growth of home delivery in food and the march of the discounters [plus] a challenging UK consumer market.”
The company’s announcement earlier this week that it would close many more stores than expected and focus more on digital, plus faster turnaround, may seem to some observers to have come quite late in the day, but the message does seem to have got through.
Rowe admitted Wednesday that M&S’s supply chains “require significant upgrades” to boost speed and that “our online capability is behind the best of our competitors and our website is too slow.” It has struggled to cope with peak demand and some of its systems are dated.
The plan to close around 25% of its legacy Clothing & Home space is a big step in this direction with the firm saying “the success of this programme will be supported by sales transfer rates which have been higher than expectations and by the growth of online.”
The website is being improved and it’s investing to increase and improve e-commerce capacity to support its ambition to double the online share of its Clothing & Home sales to over 33%. It’s also building new retail distribution capacity and “teams have been established to address the supply chain issues to deliver a faster, lower-cost network.”
The company admitted that its “customer base has narrowed and [it has] lost share of younger family-age customers and larger households” but it sees opportunity to “attract new customers to our brand and restore popular appeal and grow our business.”
It Clothing & Home, it’s “taking steps to recover our appeal to family-age customers, reducing the number of lines and phases, buying more stylish product in greater depth and emphasising value.” And that news of increased customer numbers mean this is having some effect.
So what will all this mean for the current year? In Clothing & Home, M&S expects a year-end space reduction of around 5%, as it speeds up its programme to close less productive stores. The gross margin should be broadly flat, with the first half of the year adversely affected by currency and clearance sale timing.
Copyright © 2021 FashionNetwork.com All rights reserved.