May 19, 2014
Reading time
3 minutes
Download the article
Click here to print
Text size
aA+ aA-

Marks & Spencer : three-year plan to end with third straight fall in profit

May 19, 2014

LONDON, United Kingdom - British retailer Marks & Spencer is expected to report a 7.5 percent drop in annual profit on Wednesday, a third consecutive fall after a three-year investment plan failed to revive its underperforming non-food business. Over the last three years Chief Executive Marc Bolland has spent 2.3 billion pounds ($3.9 billion) addressing decades of under-investment to transform M&S into an international retailer reaching customers through stores, the web and mobile devices.

Though he has spent heavily on redesigning products and stores and on overhauling logistics to complement a new Internet platform that went live in February, a new clothing team he set up in 2012 has so far failed to deliver a significant pick-up in sales.

The 130-year-old firm, whose general merchandise division, made up of clothing, footwear and homewares has posted eleven consecutive quarters of underlying sales decline, is forecast by analysts to report a year to March 29 profit before tax and one-off items of 600-630 million pounds, with a consensus of 615 million pounds, according to a company poll. That compares with the 665 million pounds profit M&S made in 2012-13 and would fall below the annual profit made by faster-growing rival Next for the first time.

Bolland, CEO since 2010, is expected to repeat his mantra of "step by step" improvement at Britain's biggest clothing retailer and emphasize that future sales growth will increasingly come from online and overseas channels. M&S currently has over 750 UK stores and over 400 overseas.

Analysts also expect him to signal that M&S has significant scope to improve gross profit margins in general merchandise as it benefits from investment in its supply chain.

With annual capital expenditure now set to fall at the end of the three-year investment plan, free cash flow will improve and there could a signal from the firm on what it intends to do with its spare capital.

Analysts expect the company to maintain a 17 pence a share dividend.

The profit fall will likely impact Bolland's performance-related annual bonus. He set a revised target in 2012 to increase M&S's total sales to 10.8-11.5 billion pounds in the 2013-14 year. Analysts are forecasting about 10.3 billion pounds.

M&S last month posted a 0.6 percent fourth quarter like-for-like sales rise for the clothing part of the general merchandise division, its best quarterly performance for three years, and food showed an eighteenth straight quarter of growth. But optimism was tempered by concerns over a deterioration in clothing gross margin in a highly promotional market.

M&S showcased its new autumn/winter clothing ranges to analysts on Wednesday: "Overall we felt that M&S will not blow itself up with this collection but neither will it be in any way transformational." said Espirito Santo Investment Bank analyst Tony Shiret.

Shares in M&S closed Thursday at 461 pence, giving a market capitalization of 7.52 billion pounds.

That share price is not much higher than the 400 pence a share retail tycoon Philip Green proposed to pay for the retailer a decade ago. M&S, however, says comparisons are unfair given 10 years of dividend payments, a 2004 tender offer and a 2007-08 share buyback.

© Thomson Reuters 2022 All rights reserved.