Marks and Spencer said it would speed up an overhaul of its store estate and the streamlining of its clothing ranges after annual profits slumped to their lowest level in at least three decades.
Although the retailer’s substantial food business has provided a bulwark against the worst of the coronavirus pandemic, the group has still been hit hard by the lockdown in the UK.
On Wednesday, M&S said that pre-tax profit for the year to the end of March, before exceptional items, fell to £403m from £511m in the previous year. Analysts had been expecting pre-tax profit of around £409m before one-off items.
Clothing sales in the six weeks to May 9 were down 75 per cent, with a boost in online orders failing to offset the drop in business at its physical stores. Food sales for the period were down 8.8 per cent.
The pandemic struck as chief executive Steve Rowe was attempting to revive a retailer that has struggled to keep pace with consumer tastes.
M&S had already ruled out paying a final dividend for the last financial year and has said a payout is unlikely for the current one. On Wednesday, the company said it will seek further expense savings, with “central support costs and headcount” to be “examined at all levels.”
About £200m worth of clothing will be put into storage for next year in anticipation of weak demand for the remainder of 2020. There will be a charge of £145m to reflect the associated costs and reductions in carrying value. At the same time, clothing supply chains will be shortened “to enable the test and re-order of seasonal fashion lines,” M&S said.
For the first time M&S disclosed profits for its two main businesses, with food making marginally more at £237m than the £224m at clothing and home.
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Despite some cushion provided by its food business, analysts estimate M&S is likely to see a substantial profit fall in the current year. Estimates compiled by S&P Capital IQ suggest a pre-tax profit of £139m.
However, analysts say the company is unlikely to need to raise fresh equity, having secured access to the Bank of England’s Covid Corporate Financing Facility and renegotiated covenant tests on its bank loans.
Its stores — though not its central London headquarters or its distribution centres — are also benefiting from a year-long business rates holiday.
M&S shares have more than halved since the start of the year and closed last night at 85p. That valued the 136-year-old company at £1.67bn — around half that of B&M, a value retailer established in 1978.