Marks & Spencer profits slump as Covid crisis hits clothing sales

(Sharecast News) - UK retailer Marks & Spencer said annual year profits fell by a fifth as it felt the early impact of the Covid-19 pandemic, adding that it would speed up restructuring plans.
The company on Wednesday said it had learned how to be more nimble during the crisis and was accelerating its "never the same again" transformation programme.

Annual profits were hit by £52m in March as the pandemic spread. The High Street chain also took a charge of £145m as it was left with seasonal clothing stock which it now cannot offload or was stuck in warehouses pending possible future sales at knockdown prices.

"Like all fashion businesses one of the biggest challenges arising from the crisis is the mounting backlog of unsold stock for Spring/Summer 2020 and the forward pipeline of stock already ordered for Autumn/Winter," the company said.

"As the lockdown eases a large proportion of current season stock will remain unsold and demand for many categories is likely to be weak. We have acted quickly to improve this position."

M&S said turnaround priorities included pushing online grocery sales through its new partnership with Ocado, making the food supply chain more efficient and accelerating changes to its store estate .

Food like-for-like revenue rose 1.9% and operating profit 11.2% as shoppers stockpiled in the early days of the UK lockdown, but clothing operating profit slumped by 37% and revenues 6%, adversely impacted by availability in the first half.

M&S food sales have not matched those of larger supermarket peers as its in-town stores are generally smaller and suffered a double hit as non-essential businesses were closed in the lockdown leading to a collapse in lunchtime trade from office workers.

The company reported pre-tax profits before one-off items down 21.2% at £403m, below average estimates of £415m. It set aside £212.8m for costs and stock write downs for Covid-19. Total annual revenues fell 1.9% to £10.18bn



M&S forecast the Covid-19 impact to result in a 70% decline in revenue in UK clothing and home for the four months to July, and only a gradual return to normal by February 2021. In UK Food estimates are for a 20% decline in revenues for the same period.

Chief executive Steve Rowe said outperformance in food and some "green shoots in clothing in the second half ... now seem like ancient history as the trauma of the Covid crisis has galvanised our colleagues to secure the future of the business."

"The crisis illustrated how differently we can use technology, run stores, and make decisions fast. In a business with a history of slow cultural change we intend to use these lessons, to ensure that as lockdown eases, we are never the same again in culture, organisation and work habits."

The results included a first time net income contribution from Ocado of £2.6m. M&S will start supplying the home delivery service from September 1.

M&S was looking to cut around £500m in costs this year, identifying savings in marketing, logistics and recruitment. Business rates relief provided a £172m benefit and it was drawing around £50m from the government's Job Retention Scheme.

The group in March scrapped a final dividend for the 2019-20 year, saving it and last month said it would not pay out in 2020-21, saving £340m.

Interactive Investor head of markets Richard Hunter said the Covid-19 crisis "may unwittingly have provided M&S with the catalyst it needed to overhaul its slumbering prospects".

"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."