LONDON — Marks & Spencer is downsizing and streamlining its business — and suffering the consequences.
The British retailer, which earlier this week announced plans to close 100 stores by 2022, saw profits plummet in the fiscal year ended March 31. They fell 74.8 percent to 29.1 million pounds due to an earlier round of store closures, a decrease in food gross margin and cost inflation. Profit before taxes and adjusting items was down 5.4 percent to 580.9 million pounds.
Revenue was broadly flat at 10.7 billion pounds. The company share price was up 3.2 percent to 3.01 pounds on Wednesday morning following the results’ release.
“At our half-year results in November, I outlined the need for accelerated change at M&S,” said Steve Rowe, the company’s chief executive officer. “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. These changes come with short-term costs, which are reflected in today’s results.”
He added that there “are a number of structural issues to address and we are taking steps toward fixing these. The new organization 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 as we start to leverage the strength of the M&S brand and values across a family of businesses to deliver sustainable, profitable growth in three-to-five years.”
The company said cash generation was strong even after restructuring costs, enabling maintenance of a full-year dividend, unchanged at 18.7 pence. Clothing and Home revenue fell 1.4 percent due to the planned cancellation of two clearance sales, and unseasonal, second-half trading conditions that brought snowstorms to much of the U.K.
The retailer, which is waging a war on multiple fronts, said its transformation program was well under way. It comes not a moment too soon. Since the end of the fiscal year on March 31, M&S faced a new challenge — the proposed merger of supermarket giants Sainsbury’s and Asda, which will create an omnichannel food and clothing behemoth in an ever-competitive industry.
“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 all amount to threats to our business and market position. These, together with a challenging U.K. consumer market, mean that we have to modernize our business to ensure we are competitive and reignite our culture. Accelerated change is the only option,” the store said Wednesday as part of its results presentation.
“Developments in the retail industry since then have reinforced our conviction about the need for the transformation of M&S. Changes in the high street and migration online mean that we have to be decisive with our store estate, renewing and closing stores more quickly,” M&S continued. “Our supply chains in both Clothing and Home and in Food require significant upgrades, so that we can be faster to market, reduce high stock levels in clothing, and improve availability and waste in food.”
The store said that while online sales are growing, its online capability “is behind the best of our competitors and our web site is too slow. M&S said its fulfillment center has struggled to cope with peak demand and some of its systems are dated. “In both businesses, we need to revitalize our ranges and reassert our reputation for value for money,” the company said.
Looking to the current fiscal year, M&S said it’s expecting space reduction of about 5 percent in Clothing and Home as it accelerates its program to close less-productive stores. The company also said it expects U.K. costs to decrease by up to 1 percent, as a result of cost efficiencies and lower depreciation offsetting the costs of new space, channel shift and inflation.