M&S profits fall by over 60 per cent

What went wrong?

M&S has reported a 63.5 per cent fall in pre-tax profits to £176.4m  in the current financial year.

Much of the decline was due to one-off items, including the costs of store closures and shutting the company’s defined benefit pension scheme.

Stripping out these items, adjusted profit still fell by 10.3 per cent, to £613.8m.

Revenues in the ailing Clothing and Home division fell 2.8 per cent, though M&S is now selling more of its stock at full price, rather than at a promotional discount.

Food revenue grew by 4.2 per cent thanks to new stores being opened, though the margin made by M&S fell by 25 basis points as wholesale food price inflation started to bite. This trend is likely to continue with gross margin expected to fall by up to 50 basis points in the coming year.

M&S maintained its dividend at 18.7p per share.

Laith Khalaf, senior analyst, Hargreaves Lansdown, said: “The new M&S boss Steve Rowe is pulling out all the stops to turn performance around, but restructuring the business comes at a cost, and that’s why the company has posted a huge fall in profits. A late Easter also added to the retailer’s woes, as its latest festive sales will fall into next year’s profits.

“On top of its own singular problems, M&S is facing some big economic headwinds, in particular the fall in sterling, which is pushing up the price of food and clothes against a backdrop of squeezed consumer incomes. The high street is also in decline as more of us turn to our mobiles and tablets to do our shopping, which leaves M&S fighting an even steeper uphill battle.

“All of this paints a pretty gloomy picture for the high street retailers for the foreseeable future. The new strategy at Marks and Spencer is much needed, and may eventually pay off, but it’s not going to be an easy ride.”