Marks & Spencer shares rise on coronavirus revamp, despite blow to profit
Marks & Spencer’s full-year profit sank 21 per cent as it took a £212m hit from coronavirus at the end of March, the retailer revealed today.
However, investors pushed M&S’ share price up 4.6 per cent to 89.8p as the pandemic forced the British high street brand into an overhaul to save over £1bn.
The figures
Marks & Spencer posted a 21.2 per cent drop in profit before tax from £84.2m the previous year to £67.2m for the year to 28 March.
That included a £52m hit from coronavirus and another £212.8m for costs and stock writedowns resulting from the pandemic.
Group revenue also slumped 1.9 per cent year on year to £10.18bn. Strong like-for-like food revenue growth of 1.9 per cent could not offset an 8.3 per cent drop in clothing and home sales.
Earnings per share tanked 48 per cent from 2.5p to 1.3p while M&S slashed its dividend by 70 per cent to just 3.9p per share.
Cashflow plunged over 60 per cent to £225m on Marks & Spencer’s £750m online shopping tie-up with Ocado. Net debt inched down from £4.08bn to £4.03bn.
Why it’s interesting
While Marks & Spencer suffered a big hit to profit, its UK food business outperformed the market with sales up 1.9 per cent and operating profit jumping 11.2 per cent. M&S food halls have been able to stay open which has cushioned the blow somewhat.
In a call to journalists, chief executive Steve Rowe said there had also been a big pickup in online food purchase in the past few weeks.
Meanwhile, M&S’ clothing and home division continued to underperform, with like-for-like sales falling 6.2 per cent despite “a year of substantial reshaping”. Coronavirus knocked sales by almost 27 per cent in the third week of March.
Marks & Spencer anticipates a 70 per cent decline in clothing and home sales for the four months to July, with a gradual return to original budgeted levels by February 2021. That will hit annual revenue by £1.5bn. Food sales are expected to fall 20 per cent, with revenue level thereafter.
But M&S investors bolstered the retailer’s share price as it announced a huge restructuring programme in response to coronavirus.
Rowe expects his new strategy to net M&S £1bn of annual savings, including direct cost reductions of £500m in 2020-21.
Those include cutting clothing and home marketing and a recruitment freeze Marks & Spencer expects to net it £40m.
Business rates relief will save M&S £172m and the job retention scheme, which 27,000 staff are on, should help it save £50m. M&S is topping up furloughed staff’s salaries.
The retailer has cancelled late summer stock, at a cost of £100m. And the company has taken a charge of £145.3m to “reflect the cumulative impact of the combined handling, clearance, hibernation and write-off of the stock bulge”.
It has also set out a coronavirus scenario in which drawing down credit lines gives the retailer enough cashflow to survive the next 18 months.
“We are pleased to note that in the first six weeks of the new year, sales and cash have substantially outperformed the scenario,” Marks & Spencer added.
“This will assuage investors who had been concerned as to the company’s viability,” Interactive Investor’s head of markets, Richard Hunter, said.
Rowe told journalists M&S would also be renegotiating with landlords where there are “onerous” leases to ensure the company doesn’t become uncompetitive because of leases in places where traffic has dropped off.
“The Covid-19 crisis may unwittingly have provided M&S with the catalyst it needed to overhaul its slumbering prospects,” Hunter added.
“The direct impact of the pandemic may have been felt mostly in its stores and largely therefore on its clothing and home lines. But it has also galvanised the company into a rethink of the entire business, scything through layers of unnecessary processes and costs in anticipation of how the consumer may shop on the other side of the current economic shock.”
What M&S said
Chief executive Steve Rowe said:
Last year’s results reflect a year of substantial progress and change including the transformative investment in Ocado Retail, outperformance in Food and some green shoots in Clothing in the second half. However, they now seem like ancient history as the trauma of the Covid crisis has galvanised our colleagues to secure the future of the business.
Whilst some customer habits will return to normal others have changed forever, the trend towards digital has been accelerated, and changes to the shape of the high street brought forward.