LONDON (Alliance News) - Shares in Marks & Spencer Group PLC on Wednesday fell to the bottom of the FTSE 100 after the food, clothing and homewares retailer warned on its short-term profit as new Chief Executive Steve Rowe revealed his plans to try and revive the struggling Clothing & Home division.
Shares in M&S were trading down 7.3% at 412.27 pence on Wednesday morning, the worst performer in the FTSE 100.
Rowe, who took the helm from long-serving ex-boss Marc Bolland in early April, said his priority as the retailer's new head is to recover the Clothing & Home division, formerly called Merchandise, and bring it back to profitability.
In order to do this, M&S will invest to re-establish its price position by sharpening prices, enhance service by putting more employees into its stores and improve the style of its products, but the costs of doing this will hit profit this year and next, Rowe warned.
As part of its price proposition, M&S will invest in everyday price as well as reduce the number of promotions and sales, which it said will make the business more competitive and "rebuild trust" in its pricing stance. It started work on this in the fourth quarter of its last financial year when it reduced the prices of 300 core products.
In order to enhance service and customer experience, M&S said it will deliver clearer ranges and "real choice" to make purchasing decisions simpler and quicker. It will reduce the number of products sold in the autumn/winter ranges, stripping out duplication and improving availability of all sizes.
In addition, M&S will hire more employees in its stores and improve in-store facilities, while also continuing to develop its online and mobile offerings.
Finally, M&S will re-establish its "style authority" by focusing on "wearable, contemporary style and unbeatable wardrobe essentials". The retailer will refocus on "stylish everyday essentials" which it will continually refresh to ensure they are current and competitive, while maintaining its focus on quality.
On top of improvements to the clothing and home offering, Rowe said he will also work on continuing to grow the much more successful food business. The retailer acknowledged the deflationary food market which has been hitting the big UK players in the grocery sector in recent times, and said it will also invest in price in the food business in order to stay competitive and offer "great value".
"These actions, combined with the difficult trading conditions, will have an adverse effect on profit in the short term. We are, however, confident that our commitment to delivering the right product, price and service will help return clothing & home sales to growth. This, together with continued momentum in food, will provide us with a solid base from which to build a long-term sustainable business," Rowe said in a statement.
M&S added that sales in the current financial year will follow a similar trend to its recently-completed year as a result of the tough market conditions and investments.
M&S also revealed an increase in pay rates for staff to ensure it "attracts and retains the best talent". The base rate for qualified customer assistants will increase to GBP8.50 an hour outside London and GBP9.65 in Greater London, while section coordinators and section managers will also receive a pay rise. These will come into effect from April 2017.
In addition, M&S plans to close its UK defined benefit pension scheme for future service accrual and enrol current defined benefit members in its defined contribution savings plan from April 2017.
M&S said it doesn't expect these changes to have a significant impact on underlying costs in this or next year, but that there will be a non-underlying charge in the current financial year between GBP100 million and GBP150 million due to the pension changes.
The new strategy came as M&S released its results for its recently-ended financial year. Pretax profit in the year ended April 2 fell to GBP488.8 million from GBP600.0 million the year before, hit by increased charges and non-underlying costs. Underlying pretax profit, which excludes these, grew to GBP689.6 million from GBP661.2 million, beating the consensus estimate of GBP673.0 million.
Revenue, meanwhile, rose slightly to GBP10.56 billion from GBP10.31 billion, also beating analyst expectations. By division, food sales grew 3.6%, or 0.2% on a like-for-like basis, while clothing & home sales fell by 2.2%, or 2.9% on a like-for-like basis. M&S.com, meanwhile, achieved sales growth of 23%.
M&S said Clothing & Home was particularly hit in the autumn as a result of unseasonably warm weather, leading to high levels of promotional activity to dispose of unsold clothes.
M&S will pay total dividend of 18.7 pence, which is up 3.9% on the prior year, and a special dividend of 4.6p for the first half of the new financial year.
By Karolina Kaminska; karolinakaminska@alliancenews.com @KarolinaAllNews
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