Weak clothing sales hit M&S interims as profits slump 17%

(Sharecast News) - Weaker clothing and homeware sales saw interim revenue at retailer Marks & Spencer fall 2% as the company posted a 17% decline in pre-tax profits in "challenging" conditions.
Clothing and homeware like-for-like sales fell 5.5%, reflecting "first half shape of buy and supply chain issues", M&S said on Wednesday, while food like-for-like sales grew 0.9% driven by volume.

Group revenue fell to £4.8bn from £4.9bn. Pre-tax and adjusted items profit was £176.5m, down from £213m a year earlier. The interim dividend plummeted 40% to 3.9p.

For the full year, M&S said that while some improvement in trading was expected in the second half "market conditions remain challenging".

Chief executive Steve Rowe said the company's transformation plan was now running "at a pace and scale not seen before".

"For the first time we are beginning to see the potential from the far reaching changes we are making. In clothing and home we are making up for lost time," he said.

"We are still in the early stages, but we are clear on the issues we need to fix and, after a challenging first half, we are seeing a positive response to this season's contemporary styling and better value product."

Clothing & Home net store closures were expected to reduce sales by around 2%, down from 3%, due to the timing of closures. Gross margin was expected to reduce by 25-75 basis points from a previously estimate of plus or minus 25 bps.

Last month Rowe was forced to admit the reorganisation of its clothing business was 18 months behind schedule. Clothing chief Jill McDonald was forced out during the summer and in September finance director Humphrey Singer left after being in post for little more than a year.

Markets.com analyst Neil Wilson said the string of high level departures "points to the trouble".

"Steve Rowe has taken over directly and binned senior staff. It's never a great plan for a CEO to go down this route, but progress was too slow. But if it doesn't pay off, will his head be the next to roll?"

Analysts at RBC Capital Markets said they had given the stock a sector 'perform' rating with a 190p price target.

"We think M&S has lost like-for-like market share in clothing & home and the problems with this business look to be deep-seated, with most of the solutions being things M&S has tried in the past."

"Its premium food business is showing some green shoots, and responding to price cuts, and we feel it has a clearly defined position in the market, although we question its growth potential and the potential contribution from the Ocado joint venture."