'Bleak outlook' for M&S sales growth

Marks & Spencer warned of a bleak outlook for sales growth as it reported a decline in half-year revenue, but surprised the market with a higher profit figure.

Wednesday, 7th November 2018, 8:53 am
Updated Wednesday, 7th November 2018, 9:59 am
The Marks and Spencer store in Fishergate, Preston, is one of the sites across the UK believed to be at risk following the announcement of a company-wide restructure

Revenue dropped by 3.1 per cent to £4.96bn, reflecting declining sales in both the food and clothing and home divisions.

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Preston's M&S on Fishergate is among those believed to be at risk.

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M&S said it does not expect much improvement in sales in the near future, as it deals with "the growth of online competition and the march of the discounters".

"Therefore, as we embark on the difficult early stages of transformation, we are expecting little improvement in sales trajectory," the retailer said.

The company has already announced plans to close around 100 stores in the UK as well as exiting some international markets, but said "significant further change" is required.

Chief executive Steve Rowe said on a call with media that M&S needs to have a "constant churn" of locations to ensure its store portfolio is fit for purpose.

"We should have been doing what retailers do all the time. We need a constant churn to ensure we've got the right stores in the right places for our customers. I'm not going to stop at 100 and say job done."

Clothing and home revenue fell by 2.7% as a result of the strategy to close underperforming stores and reduce the amount of in-store space dedicated to non-food items. Like-for-like sales declined by 1.1%.

Food revenue dipped by just 0.2% overall, but like-for-like sales slipped by 2.9% due to the use of fewer promotions and the timing of Easter.

Underlying pre-tax profits rose 2% to £223.5 million, compared with £219.1 million a year earlier.

Consensus forecasts had pointed to a decline in profits to £203 million.

M&S said the improved profit was due to the phasing of costs, but full-year cost guidance remains the same.

Mr Rowe said the retailer was "leaving no stone unturned" in its radical transformation plan.

"We are on track to restructure our store portfolio with over 100 full-line closures and expect to see newly remodelled stores open next year," he said.

"We are fixing the basics of our online channel and there are very early signs of improvement. Every aspect of our ranges, how we trade, our supply chain and marketing is undergoing scrutiny and change."

Capital expenditure is now expected to be between £300 million and £350 million before disposals, lower than a previous estimate of up to £400 million.

Tom Stevenson, investment director at Fidelity Personal Investing's share dealing service, said the results were like a "cold shower".

"The company is ruthlessly honest about the massive challenge it faces," he said.

"It is re-inventing itself on no less than nine different fronts, acknowledging that it has a mountain to climb in both clothing and food, that its management has been weak, its website clunky and its stores old-fashioned."