Marks & Spencer profits down 62% due to cost of transformation plan

Marks & Spencer has reported pre-tax profits after adjusted items of £66.8m, down -62.1% year-on-year, due to the costs incurred by its radical store restructuring, which yesterday it revealed would involve the closure of 100 stores by 2022.

Sales at the retailer were broadly flat (up 0.7%) at £10.7bn in the year to 31 March, while profits before tax and before its restructuring costs were factored in were £580.9m, down -5.4%, which it said was impacted by a decrease in Food gross margin.

In Clothing & Home, sales were down -1.4% and -1.9% on a like-for-like basis while Food was up 3.9% or down -0.3% on a like-for-like basis. Total UK sales were up 1.8% or down -0.9% on a like-for-like basis while international sales were down -10.2% as the business has been reducing its number of international stores.

CEO Steve Rowe said the increased costs incurred by the restructure were short term and necessary for the longer term health of the business. "At our half year results in November I outlined the need for accelerated change at M&S. 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 said.

“There are a number of structural issues to address and we are taking steps towards fixing these. The new organisation 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,” Rowe added.

As well as right-sizing the store estate, which is focused on fewer, better full-line stores and more locally placed food stores which can also be used as click & collect points for online orders, the business has also been shaking up and simplifying its management team after admitting it had become too top-heavy and corporate.

New Clothing & Home managing director Jill McDonald joined from Halfords last autumn and has the task of turning around the fortunes of this struggling but crucial category. The -1.4% drop in sales was attributed to a planned removal of two clearance sales, and unseasonal second half trading conditions when many retailers saw their performance impacted by heavy snow over much of the country. By the end of the next financial year, M&S said it expected to have reduced its Clothing & Home floor space by circa 5%.

Yesterday the business revealed it was ramping up its proposed store closure programme from 60 to 100 stores over the next four years and revealed the locations of he next 14 stores to be proposed for closure.